Title

Conditional volatility asymmetry of business cycles: Evidence from four OECD countries

Document Type

Journal Article

Publisher

The Economic Research Institute of Chung-Ang University (Korea)

Faculty

Faculty of Regional and Professional Studies

School

School of Business (RPS)/Finance, Economics, Markets and Accounting Research Centre

RAS ID

16453

Comments

This article was originally published as: Ho, K., Tsui, A.K., & Zhang, Z. (2013). Conditional volatility asymmetry of business cycles: Evidence from four OECD countries. The Journal of Economic Development , 38(3), 33-56. Original article available here

Abstract

Most studies of business cycle exclude the dimension of asymmetric conditional volatility. In this paper, we propose three bivariate asymmetric GARCH models to capture the properties of conditional volatility and time-varying conditional correlations of business cycle indicators in four OECD countries. Our study extends the constant conditional correlation framework proposed by Bollerslev (1990) and the time-varying conditional correlation approach by Tse and Tsui (2002), respectively. Using indices of industrial production as proxies for business cycles indicators, we detect statistically significant evidence of asymmetric conditional volatility in the UK and US. Additionally, we find that the conditional correlations are significantly time-varying, and that the strength of varying correlations may be linked to the degree of economic integration between the countries.

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