Overlaying Time Scales in Financial Volatility Data
AbstractApart from the well-known, high persistence of daily financial volatility data, there is also a short correlation structure that reverts to the mean in less than a month. We find this short correlation time scale in six different daily financial time series and use it to improve the short-term forecasts from GARCH models. We study different generalizations of GARCH that allow for several time scales. On our holding sample, none of the considered models can fully exploit the information contained in the short scale. Wavelet analysis shows a correlation between fluctuations on long and on short scales. Models accounting for this correlation as well as long memory models for absolute returns appear to be promising.
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Bibliographic InfoPaper provided by EconWPA in its series Econometrics with number 0501015.
Length: 40 pages
Date of creation: 31 Jan 2005
Date of revision:
Note: Type of Document - pdf; pages: 40
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GARCH; volatility persistence; spurious high persistence; long memory; fractional integration; change-points; wavelets; time scales;
Find related papers by JEL classification:
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
- NEP-BEC-2005-04-16 (Business Economics)
- NEP-ECM-2005-04-16 (Econometrics)
- NEP-ETS-2005-04-16 (Econometric Time Series)
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