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Testing the fractionally integrated hypothesis using M estimation: With an application to stock market volatility

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  • Paulo M.M. Rodrigues
  • Matei Demetrescu

Abstract

A new class of tests for fractional integration in the time domain based on M estimation is developed. This approach offers more robust properties against non-Gaussian errors than least squares or other estimation principles. The asymptotic properties of the tests are discussed under fairly general assumptions, and for different estimation approaches based on direct optimization of the M loss-function and on iterated k-step and reweighted LS numeric algorithms. Monte Carlo simulations illustrate the good finite sample performance of the new tests and an application to daily volatility of several stock market indices shows the empirical relevance of the new tests.

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  • Paulo M.M. Rodrigues & Matei Demetrescu, 2018. "Testing the fractionally integrated hypothesis using M estimation: With an application to stock market volatility," Working Papers w201817, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w201817
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    References listed on IDEAS

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    2. Hiroyuki Kawakatsu, 2021. "Information in daily data volatility measurements," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 1642-1656, April.

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