True Versus Spurious Long Memory: Some Theoretical Results and a Monte Carlo Comparison

Leccadito, A., Rachedi, O. & Urga, G. (2015). True Versus Spurious Long Memory: Some Theoretical Results and a Monte Carlo Comparison. Econometric Reviews, 34(4), pp. 452-479. doi: 10.1080/07474938.2013.808462

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Abstract

A common feature of financial time series is their strong persistence. Yet, long memory may just be the spurious effect of either structural breaks or slow switching regimes. We explore the effects of spurious long memory on the elasticity of the stock market price with respect to volatility and show how cross-sectional aggregation may generate spurious persistence in the data. We undertake an extensive Monte Carlo study to compare the performance of five tests, constructed under the null of true long memory versus the alternative of spurious long memory due to level shifts or breaks.

Item Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in Econometric Reviews on 7 Nov 2014, available online: http://wwww.tandfonline.com/10.1080/07474938.2013.808462
Uncontrolled Keywords: Fractional integration, Regime switching, Structural break,
Subjects: H Social Sciences > HG Finance
Q Science > QA Mathematics
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/6975

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