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Occasional Structural Breaks and Long Memory

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  • Granger, Clive W.J.
  • Hyung, Namwon

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

Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt4d60t4jh.

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Date of creation: 01 Jun 1999
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Handle: RePEc:cdl:ucsdec:qt4d60t4jh

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Keywords: occasional structural breaks; long memory; autocorrelation;

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References

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  1. 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.
  2. Engle, Robert F & Smith, Aaron, 1998. "Stochastic Permanent Breaks," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt99v0s0zx, Department of Economics, UC San Diego.
  3. Chen, Chung & Tiao, George C, 1990. "Random Level-Shift Time Series Models, ARIMA Approximations, and Level-Shift Detection," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 8(1), pages 83-97, January.
  4. Lobato, I.N. & Savin, N.E., 1996. "Real and Spurious Long Memory Properties of Stock Market Data," Working Papers, University of Iowa, Department of Economics 96-07, University of Iowa, Department of Economics.
  5. Granger, Clive W. J. & Terasvirta, Timo, 1999. "A simple nonlinear time series model with misleading linear properties," Economics Letters, Elsevier, vol. 62(2), pages 161-165, February.
  6. Jushan Bai, 1995. "Estimating Multiple Breaks One at a Time," Working papers 95-18, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Nunes, Luis C. & Kuan, Chung-Ming & Newbold, Paul, 1995. "Spurious Break," Econometric Theory, Cambridge University Press, vol. 11(04), pages 736-749, August.
  8. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9552, Universite de Montreal, Departement de sciences economiques.
  9. Granger, Clive W. J. & Ding, Zhuanxin, 1996. "Varieties of long memory models," Journal of Econometrics, Elsevier, Elsevier, vol. 73(1), pages 61-77, July.
  10. Bai, Jushan, 1998. "A Note On Spurious Break," Econometric Theory, Cambridge University Press, vol. 14(05), pages 663-669, October.
  11. 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.
  12. Yao, Yi-Ching, 1988. "Estimating the number of change-points via Schwarz' criterion," Statistics & Probability Letters, Elsevier, vol. 6(3), pages 181-189, February.
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