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Persistence In Nonlinear Time Series: A Nonparametric Approach

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  • Juan Carlos Escanciano, Javier Hualde

    ()
    (Indiana University Bloomington, Universidad de Navarra)

Abstract

The purpose of the present paper is to relate two important concepts of time series analysis, namely, nonlinearity and persistence. Traditional mea- sures of persistence are based on correlations or periodograms, which may be inappropriate under nonlinearity and/or non-Gaussianity. This article proves that nonlinear persistence can be characterized by cumulative measures of de- pendence. The new cumulative measures are nonparametric, simple to estimate and do not require the use of any smoothing user-chosen parameters. In addi- tion, we propose nonparametric estimates of our measures and establish their limiting properties. Finally, we employ our measures to analyze the nonlin- ear persistence properties of some international stock market indices, where we ?nd an ubiquitous nonlinear persistence in conditional variance that is not accounted for by popular parametric models or by classical linear measures of persistence. This ?nding has important economic implications in, e.g., asset pricing and hedging. Conditional variance persistence in bull and bear markets is also analyzed and compared.

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Bibliographic Info

Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2009-003.

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Length: 48 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:inu:caeprp:2009-003

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