IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Level Shifts and the Illusion of Long Memory in Economic Time Series

  • Smith, Aaron

When applied to time series processes containing occasional level shifts, the logperiodogram (GPH) estimator often erroneously finds long memory. For a stationary short-memory process with a slowly varying level, I show that the GPH estimator is substantially biased, and I derive an approximation to this bias. The asymptotic bias lies on the (0,1) interval, and its exact value depends on the ratio of the expected number of level shifts to a user-defined bandwidth parameter. Using this result, I formulate the Modified GPH estimator, which has a markedly lower bias. I illustrate this new estimator via applications to soybean prices and stock market volatility.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ingentaconnect.com/content/asa/jbes/2005/00000023/00000003/art00007
File Function: full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 23 (2005)
Issue (Month): (July)
Pages: 321-335

as
in new window

Handle: RePEc:bes:jnlbes:v:23:y:2005:p:321-335
Contact details of provider: Web page: http://www.amstat.org/publications/jbes/index.cfm?fuseaction=main

Order Information: Web: http://www.amstat.org/publications/index.html

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Gordon, S.F. & Filardo, A.J., 1993. "Business Cycle Durations," Papers 9328, Laval - Recherche en Politique Economique.
  2. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
  3. Diebold, Francis X. & Inoue, Atsushi, 2001. "Long memory and regime switching," Journal of Econometrics, Elsevier, vol. 105(1), pages 131-159, November.
  4. Phillips, Peter C B, 1988. "Regression Theory for Near-Integrated Time Series," Econometrica, Econometric Society, vol. 56(5), pages 1021-43, September.
  5. Timmermann, Allan, 2001. "Structural Breaks, Incomplete Information, and Stock Prices," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 299-314, July.
  6. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
  7. Clive W.J. Granger & Namwon Hyung, 2013. "Occasional Structural Breaks and Long Memory," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 739-764, November.
  8. Granger, Clive W. J. & Ding, Zhuanxin, 1996. "Varieties of long memory models," Journal of Econometrics, Elsevier, vol. 73(1), pages 61-77, July.
  9. Lobato, Ignacio N & Savin, N E, 1998. "Real and Spurious Long-Memory Properties of Stock-Market Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(3), pages 261-68, July.
  10. Robert F. Engle & Aaron D. Smith, 1999. "Stochastic Permanent Breaks," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 553-574, November.
  11. Chib, Siddhartha, 1998. "Estimation and comparison of multiple change-point models," Journal of Econometrics, Elsevier, vol. 86(2), pages 221-241, June.
  12. Hidalgo, Javier & Robinson, Peter M., 1996. "Testing for structural change in a long-memory environment," Journal of Econometrics, Elsevier, vol. 70(1), pages 159-174, January.
  13. Chen, Chung & Tiao, George C, 1990. "Random Level-Shift Time Series Models, ARIMA Approximations, and Level-Shift Detection," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 83-97, January.
  14. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  15. Liu, Ming, 2000. "Modeling long memory in stock market volatility," Journal of Econometrics, Elsevier, vol. 99(1), pages 139-171, November.
  16. Cavanagh, Christopher L. & Elliott, Graham & Stock, James H., 1995. "Inference in Models with Nearly Integrated Regressors," Econometric Theory, Cambridge University Press, vol. 11(05), pages 1131-1147, October.
  17. Deo, Rohit S. & Hurvich, Clifford M., 2001. "On The Log Periodogram Regression Estimator Of The Memory Parameter In Long Memory Stochastic Volatility Models," Econometric Theory, Cambridge University Press, vol. 17(04), pages 686-710, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bes:jnlbes:v:23:y:2005:p:321-335. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.