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Item type:Publication, An Application of a Short Memory Model With Random Level Shifts to the Volatility of Latin American Stock Market Returns(Pontificia Universidad Católica del Perú. Departamento de Economía, 2014)Empirical research indicates that the volatility of stock return time series have long memory. However, it has been demonstrated that short memory processes contaminated with random level shifts can often be confused as being long memory. Often this feature is referred to as spurious long memory. This paper represents an empirical study of the random level shift (RLS) model using the approach of Lu and Perron (2010) and Li and Perron (2013) for the volatility of daily stocks returns data for five Latin American countries. The RLS model consists of the sum of a short term memory component and a level shift component, where the level shift component is governed by a Bernoulli process with a shift probability α. The estimation results suggest that the level shifts in the volatility of daily stocks returns data are infrequent but once they are taken into account, the long memory characteristic and the GARCH effects disappear. An out-of-sample forecasting exercise is also provided. - Some of the metrics are blocked by yourconsent settings
Item type:Publication, Un modelo estoclástico de volatilidad con sesgo GH en la distribución T de Student.(Pontificia Universidad Católica del Perú. Departamento de Economía, 2015)This paper presents an empirical study of a stochastic volatility (SV) model for daily stocks returns data of a set of Latin-American countries (Argentina, Brazil, Chile, Mexico and Peru) for the sample period 1996:01-2013:12. We estimate SV models incorporating both leverage effects and skewed heavy-tailed disturbances taking into account the GH Skew Student’s t-distribution using the Bayesian estimation method proposed by Nakajima and Omori (2012). A model comparison between the competing SV models with symmetric Student.s t-disturbances is provided using the log marginal likelihoods and a prior sensitivity analysis is also provided. The results suggest that there are leverage effects in all returns considered but there is not enough evidence for the case of Peru. Furthermore, skewed heavy-tailed disturbances are confirmed only for Argentina, symmetric heavy-tailed disturbances for Mexico, Brazil and Chile, and symmetric Normal disturbances for Peru. Furthermore, we find that the GH Skew Student’s t-disturbance distribution in the SV model is successful in describing the distribution of the daily stock return data for Peru, Argentina and Brazil over the traditional symmetric Student’s t-disturbance distribution.