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Long memory with Markov-Switching GARCH

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  • Prof. Dr. Walter Krämer

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    (Faculty of Statistics, Dortmund University of Technology)

Abstract

The paper considers the Markov-Switching GARCH(1,1)-model with time-varying transition probabilities. It derives su±cient conditions for the square of the process to display long memory and provides some additional intuition for the empirical observation that estimated GARCH-parameters often sum to almost one.

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Bibliographic Info

Paper provided by Business and Social Statistics Department, Technische Universität Dortmund in its series Working Papers with number 6.

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Length: 9 pages
Date of creation:
Date of revision: Oct 2006
Publication status: Published in Economics Letters, May 2008, pages 390-392
Handle: RePEc:dor:wpaper:6

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Keywords: Markov switching; GARCH; long memory;

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References

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  1. Christian Francq & Michel Roussignol & Jean-Michel Zakoïan, 1998. "Conditional Heteroskedasticity Driven by Hidden Markov Chains," Working Papers, Centre de Recherche en Economie et Statistique 98-45, Centre de Recherche en Economie et Statistique.
  2. Franc Klaassen, 2002. "Improving GARCH volatility forecasts with regime-switching GARCH," Empirical Economics, Springer, Springer, vol. 27(2), pages 363-394.
  3. Prof. Dr. Walter Krämer & Baudouin Tameze Azamo, . "Structural change and estimated persistence in the GARCH(1,1)-model," Working Papers, Business and Social Statistics Department, Technische Universität Dortmund 5, Business and Social Statistics Department, Technische Universität Dortmund, revised May 2006.
  4. Klaassen, F.J.G.M., 1998. "Improving Garch Volatility Forecasts," Discussion Paper, Tilburg University, Center for Economic Research 1998-52, Tilburg University, Center for Economic Research.
  5. Hillebrand, Eric, 2005. "Neglecting parameter changes in GARCH models," Journal of Econometrics, Elsevier, Elsevier, vol. 129(1-2), pages 121-138.
  6. Markus Haas, 2004. "A New Approach to Markov-Switching GARCH Models," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 2(4), pages 493-530.
  7. Francis X. Diebold & Atsushi Inoue, 2000. "Long Memory and Regime Switching," NBER Technical Working Papers 0264, National Bureau of Economic Research, Inc.
  8. Francq, Christian & ZakoI¨an, Jean-Michel, 2005. "The L2-structures of standard and switching-regime GARCH models," Stochastic Processes and their Applications, Elsevier, Elsevier, vol. 115(9), pages 1557-1582, September.
  9. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 64(1-2), pages 307-333.
  10. Thomas Mikosch & Cătălin Stărică, 2004. "Nonstationarities in Financial Time Series, the Long-Range Dependence, and the IGARCH Effects," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 378-390, February.
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Cited by:
  1. Krämer, Walter & Tameze, Baudouin & Christou, Konstantinos, 2012. "On the origin of high persistence in GARCH-models," Economics Letters, Elsevier, Elsevier, vol. 114(1), pages 72-75.

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