BAYESIAN UNIT-ROOT TESTING IN STOCHASTIC VOLATILITY MODELS WITH CORRELATED ERRORS

Date

2013-12-01

Author

Kalaylıoğlu Akyıldız, Zeynep Işıl
Ghosh, Sujit K.

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A series of returns are often modeled using stochastic volatility models. Many observed financial series exhibit unit-root non-stationary behavior in the latent AR(1) volatility process and tests for a unit-root become necessary, especially when the error process of the returns is correlated with the error terms of the AR(1) process. In this paper, we develop a class of priors that assigns positive prior probability on the non-stationary region, employ credible interval for the test, and show that Markov Chain Monte Carlo methods can be implemented using standard software. Several practical scenarios and real examples are explored to investigate the performance of our method.

Subject Keywords

Financial data, WinBUGS, Unit-root test, Gibbs sampling, Markov chain Monte Carlo, Contemporaneous financial correlation

URI

https://hdl.handle.net/11511/54469

Journal

HACETTEPE JOURNAL OF MATHEMATICS AND STATISTICS

Collections

Department of Statistics, Article

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Citation Formats

Z. I. Kalaylıoğlu Akyıldız and S. K. Ghosh, “BAYESIAN UNIT-ROOT TESTING IN STOCHASTIC VOLATILITY MODELS WITH CORRELATED ERRORS,” HACETTEPE JOURNAL OF MATHEMATICS AND STATISTICS, pp. 659–669, 2013, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/54469.