Fractional Cointegration In StochasticVolatility Models
AbstractAsset returns are frequently assumed to be determined by one or more commonfactors. We consider a bivariate factor model, where the unobservable commonfactor and idiosyncratic errors are stationary and serially uncorrelated, but havestrong dependence in higher moments. Stochastic volatility models for the latentvariables are employed, in view of their direct application to asset pricing models.Assuming the underlying persistence is higher in the factor than in the errors, afractional cointegrating relationship can be recovered by suitable transformation ofthe data. We propose a narrow band semiparametric estimate of the factorloadings, which is shown to be consistent with a rate of convergence, and its finitesample properties are investigated in a Monte Carlo experiment.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Econometrics Paper Series with number /2007/519.
Date of creation: May 2007
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Fractional cointegration; stochastic volatility; narrow band leastsquares; semiparametric analysis.;
Other versions of this item:
- da Silva, Afonso Gonçalves & Robinson, Peter M., 2008. "Fractional Cointegration In Stochastic Volatility Models," Econometric Theory, Cambridge University Press, vol. 24(05), pages 1207-1253, October.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-23 (All new papers)
- NEP-ECM-2007-06-23 (Econometrics)
- NEP-ETS-2007-06-23 (Econometric Time Series)
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- Gilles De Truchis & Benjamin Keddad, 2013.
"Analyzing Financial Integration in East Asia through Fractional Cointegration in Volatilities,"
- Gilles de Truchis & Benjamin Keddad, 2013. "Analyzing Financial Integration in East Asia through Fractional Cointegration in Volatilities," AMSE Working Papers 1346, Aix-Marseille School of Economics, Marseille, France, revised Sep 2013.
- Afonso Gonçalves da Silva & Peter M Robinson, 2006.
"Finite Sample Performance in CointegrationAnalysis of Nonlinear Time Series with LongMemory,"
STICERD - Econometrics Paper Series
/2006/501, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Afonso Goncalves da Silva & Peter Robinson, 2008. "Finite Sample Performance in Cointegration Analysis of Nonlinear Time Series with Long Memory," Econometric Reviews, Taylor & Francis Journals, vol. 27(1-3), pages 268-297.
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