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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Distinguishing short and long memory volatility specifications
AU - Pong, S
AU - Shackleton, M B
AU - Taylor, S J
PY - 2008
Y1 - 2008
N2 - 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.
AB - 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.
U2 - 10.1111/j.1368-423X.2008.00251.x
DO - 10.1111/j.1368-423X.2008.00251.x
M3 - Journal article
VL - 11
SP - 617
EP - 637
JO - The Econometrics Journal
JF - The Econometrics Journal
SN - 1368-4221
IS - 3
ER -