Alternative Asymmetric Stochastic Volatility Models

No CIRJE-F-655, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: The stochastic volatility model usually incorporates asymmetric effects by introducing the negative correlation between the innovations in returns and volatility. In this paper, we propose a new asymmetric stochastic volatility model, based on the leverage and size effects. The model is a generalization of the exponential GARCH (EGARCH) model of Nelson (1991). We consider categories for asymmetric effects, which describes the difference among the asymmetric effect of the EGARCH model, the threshold effects indicator function of Glosten, Jagannathan and Runkle (1992), and the negative correlation between the innovations in returns and volatility. The new model is estimated by the efficient importance sampling method of Liesenfeld and Richard (2003), and the finite sample properties of the estimator are investigated using numerical simulations. Four financial time series are used to estimate the alternative asymmetric SV models, with empirical asymmetric effects found to be statistically significant in each case. The empirical results for S&P 500 and Yen/USD returns indicate that the leverage and size effects are significant, supporting the general model. For TOPIX and USD/AUD returns, the size effect is insignificant, favoring the negative correlation between the innovations in returns and volatility. We also consider standardized t distribution for capturing the tail behavior. The results for Yen/USD returns show that the model is correctly specified, while the results for three other data sets suggest there is scope for improvement.

Pages: 26 pages
Date: 2009-08
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Alternative Asymmetric Stochastic Volatility Models (2011)
Working Paper: Alternative Asymmetric Stochastic Volatility Models (2010)
Working Paper: Alternative Asymmetric Stochastic Volatility Models (2010)
Working Paper: Alternative Asymmetric Stochastic Volatility Models (2010)
Working Paper: Alternative Asymmetric Stochastic Volatility Models (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2009cf655

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