Threshold and leverage effects of major asian stock markets based on stochastic volatility models

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Abstract

This study investigates daily stock market volatility on major Asian stock indices using two stochastic volatility (SV) models, the SV model with threshold effects and the SV model with both threshold and leverage effects. Empirical results indicate the following interesting phenomenon: for threshold effects, the volatility of the NK225 index exhibited significant threshold non-linearity for both positive and negative shocks from NASDAQ returns, while the markets of South Korea and Taiwan revealed significant domestic threshold non-linearity for their own positive return shocks. All three markets display significant negative correlations between returns and volatility. However, leverage effects are most significant in the Taiwanese stock market. Comparing the two types of models in terms of DIC, reveals that the SV model with the threshold and leverage effects fits the data better.

Original languageEnglish
Pages (from-to)106-116
Number of pages11
JournalInternational Research Journal of Finance and Economics
Volume1
Issue number27
Publication statusPublished - 2009 May 1

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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