Are Feedback Factors Important in Modeling Financial Data?
This paper provides empirical evidence that continuous time models with one factor of volatility are, under some circumstances, able to fit the main characteristics of financial data and reports insights about the importance of introducing feedback factors to capture the strong persistence caused by the presence of changes in the variance. We use the Efficient Method of Moments (EMM) by Gallant and Tauchen (1996) to estimate logarithmic models with one and two stochastic volatility factors (with and without feedback) and to select among them. Copyright (c) International Review of Finance Ltd. 2007.
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Volume (Year): 7 (2007)
Issue (Month): 3-4 ()
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