A new Bayesian test statistic is proposed to test a point null hypothesis based on a quadratic loss. The proposed test statistic may be regarded as the Bayesian version of Lagrange multiplier test. Its asymptotic distribution is obtained based on a set of regular conditions and follows a...

This paper is concerned with specification for modelling financial leverage effect in the context of stochastic volatility (SV) models. Two alternative specifications coexist in the literature. One is the Euler approximation to the well known continuous time SV model with leverage effect and the...

This paper examines the asymmetric response of equity volatility to return shocks. We generalize the news impact function (NIF), originally introduced by Engle and Ng (1993) to study asymmetric volatility under the ARCH-type models, to be applicable to both stochastic volatility (SV) and...

In this paper a new Bayesian approach is proposed to test a point null hypothesis based on the deviance in a decision-theoretical framework. The proposed test statistic may be regarded as the Bayesian version of the likelihood ratio test and appeals in practical applications with three desirable...

Hypothesis testing using Bayes factors (BFs) is known not to be well defined under the improper prior. In the context of latent variable models, an additional problem with BFs is that they are difficult to compute. In this paper, a new Bayesian method, based on the decision theory and the EM...

This paper is concerned with specification for modelling financial leverage effect in the context of stochastic volatility (SV) models. Two alternative specifications co-exist in the literature. One is the Euler approximation to the well known continuous time SV model with leverage effect and...

This paper is concerned with specification for modelling financial leverage effect in the context of stochastic volatility (SV) models. Two alternative specifications co-exist in the literature. One is the Euler approximation to the well known continuous time SV model with leverage effect and...