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Distinguishing short and long memory volatility specifications

Pong, S and Shackleton, M B and Taylor, S J (2008) Distinguishing short and long memory volatility specifications. The Econometrics Journal, 11 (3). pp. 617-637. ISSN 1368-4221

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    Asset price volatility appears to be more persistent than can be captured by individual, short memory, autoregressive or moving average components. Fractional integration offers a very parsimonious and tempting formulation of this long memory property of volatility but other explanations such as structural models (aggregates of several autoregressive components) are possible. Given the ability of the latter to mimic the former, we investigate the extent to which it is possible to distinguish short from long memory volatility specifications. For a likelihood ratio test in the spectral domain, we investigate size and power characteristics by Monte Carlo simulation. Finally applying the same test to Sterling/Dollar returns, we draw conclusions about the minimum number of structural factors that must be present to mimic the long memory volatility properties that are empirically observed.

    Item Type: Journal Article
    Journal or Publication Title: The Econometrics Journal
    Departments: Lancaster University Management School > Accounting & Finance
    ID Code: 45079
    Deposited By: ep_importer_pure
    Deposited On: 11 Jul 2011 19:26
    Refereed?: Yes
    Published?: Published
    Last Modified: 13 Apr 2018 00:10
    Identification Number:

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