Stochastic Volatility in Mean. Empirical Evidence from Stock Latin American Markets

Using a Stochastic Volatility in Mean (SVM) model, we perform an empirical study of five Latin American indexes in order to see the impact of the volatility in the mean of the returns. We use MCMC Hamiltonian dynamics. The results indicate that volatility has a negative impact on returns suggesting that the volatility feedback effect is stronger than the effect related to the expected volatility. This result is clear and opposite to the finding of Koopman and Uspensky (2002). The other countries present negative values but the upper tail of the intervals are near to the zero value.

Keywords

Feed-Back Effect, Hamiltonian Monte Carlo, Markov Chain Monte Carlo, Stock Latin American Markets, Non Linear State Space Models, Riemannian Manifold Hamiltonian Monte Carlo, Stochastic Volatility in Mean

JEL Classification

C11, C15, C22, C51, C52, C58, G12