TITLE:
Bayesian Testing for Asset Volatility Persistence on Multivariate Stochastic Volatility Models
AUTHORS:
Yong Li, Fang-Ping Peng, Hao-Feng Xu
KEYWORDS:
Asset Volatility Persistency; Bayes Factor; Decision Theory; Markov Chain Monte Carlo; Unit Root Testing; Multivariate Stochastic Volatility Models
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.2 No.1,
February
28,
2012
ABSTRACT: In empirical finance, it is well-known that the volatility of asset returns is highly persistent. The persistence of the volatility process may be checked by testing for a unit root on stochastic volatility models. In this paper, a Bayesian test statistic based on decision theory is developed for testing a unit root on multivariate stochastic volatility models. At last, the developed approach is applied to investigate the persistent effect of financial crisis on the two main stock markets in China.