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Occasional Structural Breaks and Long Memory

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Author Info

  • Clive W.J. Granger

    (Department of Economics, University of California)

  • Namwon Hyung

    (Department of Economics, University of California)

Abstract

This paper shows that a linear process with breaks can mimic autocorrelations and other properties of I(d) processes, where d can be a fraction. Simulation results show that S&P 500 absolute stock returns are more likely to show the "long memory" property because of the presence of breaks in the series rather than an I(d) process.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 14 (2013)
Issue (Month): 2 (November)
Pages: 739-764

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Handle: RePEc:cuf:journl:y:2013:v:14:i:3:granger:hyung

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  1. I.N. Lobato & N.E. Savin, 1996. "Real and Spurious Long Memory Properties of Stock Market Data," Econometrics 9605004, EconWPA, revised 26 Sep 1996.
  2. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
  3. Aggarwal, Reena & Inclan, Carla & Leal, Ricardo, 1999. "Volatility in Emerging Stock Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 33-55, March.
  4. Engle, Robert F & Smith, Aaron, 1998. "Stochastic Permanent Breaks," University of California at San Diego, Economics Working Paper Series qt99v0s0zx, Department of Economics, UC San Diego.
  5. Granger, Clive W.J. & Teräsvirta, Timo, 1998. "A simple nonlinear time series model with misleading linear properties," Working Paper Series in Economics and Finance 237, Stockholm School of Economics.
  6. Yao, Yi-Ching, 1988. "Estimating the number of change-points via Schwarz' criterion," Statistics & Probability Letters, Elsevier, vol. 6(3), pages 181-189, February.
  7. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
  8. Nunes, Luis C. & Kuan, Chung-Ming & Newbold, Paul, 1995. "Spurious Break," Econometric Theory, Cambridge University Press, vol. 11(04), pages 736-749, August.
  9. Rydén, Tobias & Teräsvirta, Timo & Åsbrink, Stefan, 1996. "Stylized Facts of Daily Return Series and the Hidden Markov Model," Working Paper Series in Economics and Finance 117, Stockholm School of Economics.
  10. Bai, Jushan, 1998. "A Note On Spurious Break," Econometric Theory, Cambridge University Press, vol. 14(05), pages 663-669, October.
  11. Granger, Clive W. J. & Ding, Zhuanxin, 1996. "Varieties of long memory models," Journal of Econometrics, Elsevier, vol. 73(1), pages 61-77, July.
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