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Modelling long-run trends and cycles in financial time series data

Listed author(s):
  • Guglielmo Maria Caporale
  • Juncal Cuñado
  • Luis A. Gil-Alana

This paper proposes a general time series framework to capture the long-run behaviour of financial series. The suggested approach includes linear and segmented time trends, and stationary and nonstationary processes based on integer and/or fractional degrees of differentiation. Moreover, the spectrum is allowed to contain more than a single pole or singularity, occurring at both zero but non-zero (cyclical) frequencies. This framework is used to analyse five annual time series with a long span, namely dividends, earnings, interest rates, stock prices and long-term government bond yields. The results based on several likelihood criteria indicate that the five series exhibit fractional integration with one or two poles in the spectrum, and are quite stable over the sample period examined.

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File URL: http://hdl.handle.net/10.1111/10.1111/(ISSN)1467-9892
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Article provided by Wiley Blackwell in its journal Journal of Time Series Analysis.

Volume (Year): 34 (2013)
Issue (Month): 3 (May)
Pages: 405-421

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Handle: RePEc:bla:jtsera:v:34:y:2013:i:3:p:405-421
DOI: 10.1111/(ISSN)1467-9892
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0143-9782

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