Memory Parameter Estimation In The Presence Of Level Shifts And Deterministic Trends
We propose estimators of the memory parameter of a time series that are robust to a wide variety of random level shift processes, deterministic level shifts and deterministic time trends. The estimators are simple trimmed versions of the popular log-periodogram regression estimator that employ certain sample size-dependent and, in some cases, data-dependent trimmings which discard low-frequency components. We also show that a previously developed trimmed local Whittle estimator is robust to the same forms of data contamination. Regardless of whether the underlying long/shortmemory process is contaminated by level shifts or deterministic trends, the estimators are consistent and asymptotically normal with the same limiting variance as their standard untrimmed counterparts. Simulations show that the trimmed estimators perform their intended purpose quite well, substantially decreasing both finite sample bias and root mean-squared error in the presence of these contaminating components. Furthermore, we assess the tradeoffs involved with their use when such components are not present but the underlying process exhibits strong short-memory dynamics or is contaminated by noise. To balance the potential finite sample biases involved in estimating the memory parameter, we recommend a particular adaptive version of the trimmed log-periodogram estimator that performs well in a wide variety of circumstances. We apply the estimators to stock market volatility data to find that various time series typically thought to be long-memory processes actually appear to be short or very weak long-memory processes contaminated by level shifts or deterministic trends.
(This abstract was borrowed from another version of this item.)
Volume (Year): 29 (2013)
Issue (Month): 06 (December)
|Contact details of provider:|| Postal: |
Web page: http://journals.cambridge.org/jid_ECT
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.:
- Pierre Perron & Zhongjun Qu, 2008.
"Long-Memory and Level Shifts in the Volatility of Stock Market Return Indices,"
Boston University - Department of Economics - Working Papers Series
wp2008-004, Boston University - Department of Economics.
- Perron, Pierre & Qu, Zhongjun, 2010. "Long-Memory and Level Shifts in the Volatility of Stock Market Return Indices," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(2), pages 275-290.
- Haldrup, Niels & Nielsen, Morten Orregaard, 2007.
"Estimation of fractional integration in the presence of data noise,"
Computational Statistics & Data Analysis,
Elsevier, vol. 51(6), pages 3100-3114, March.
- Haldrup, Niels & Nielsen, Morten Oe., . "Estimation of Fractional Integration in the Presence of Data Noise," Economics Working Papers 2003-10, School of Economics and Management, University of Aarhus.
- Francis X. Diebold & Atsushi Inoue, 2000.
"Long Memory and Regime Switching,"
NBER Technical Working Papers
0264, National Bureau of Economic Research, Inc.
- Yixiao Sun & Peter C.B. Phillips, 2002.
"Nonlinear Log-Periodogram Regression for Perturbed Fractional Processes,"
Cowles Foundation Discussion Papers
1366, Cowles Foundation for Research in Economics, Yale University.
- Sun, Yixiao & Phillips, Peter C. B., 2003. "Nonlinear log-periodogram regression for perturbed fractional processes," Journal of Econometrics, Elsevier, vol. 115(2), pages 355-389, August.
- Smith, Aaron D., 2004.
"Level Shifts and the Illusion of Long Memory in Economic Time Series,"
11974, University of California, Davis, Department of Agricultural and Resource Economics.
- Smith, Aaron, 2005. "Level Shifts and the Illusion of Long Memory in Economic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 321-335, July.
- René Garcia & Pierre Perron, 1995.
"An Analysis of the Real Interest Rate Under Regime Shifts,"
CIRANO Working Papers
- Garcia, Rene & Perron, Pierre, 1996. "An Analysis of the Real Interest Rate under Regime Shifts," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 111-25, February.
- Garcia, R. & Perron, P., 1994. "An Analysis of the Real Interest rate Under Regime Shifts," Cahiers de recherche 9428, Universite de Montreal, Departement de sciences economiques.
- Garcia, R. & Perron, P., 1994. "An Analysis of the Real Interest rate Under Regime Shifts," Cahiers de recherche 9428, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Garcia, R. & Perron, P., 1990. "An Anlysis Of The Real Interest Rate Under Regime Shifts," Papers 353, Princeton, Department of Economics - Econometric Research Program.
- Perron, P, 1988.
"The Great Crash, The Oil Price Shock And The Unit Root Hypothesis,"
338, Princeton, Department of Economics - Econometric Research Program.
- Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
- Lu, Yang K. & Perron, Pierre, 2010.
"Modeling and forecasting stock return volatility using a random level shift model,"
Journal of Empirical Finance,
Elsevier, vol. 17(1), pages 138-156, January.
- Yang K. Lu & Pierre Perron, 2008. "Modeling and Forecasting Stock Return Volatility Using a Random Level Shift Model," Boston University - Department of Economics - Working Papers Series wp2008-012, Boston University - Department of Economics.
- Ohanissian, Arek & Russell, Jeffrey R. & Tsay, Ruey S., 2008. "True or Spurious Long Memory? A New Test," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 161-175, April.
- Hurvich, Clifford & Lang, Gabriel & Soulier, Philippe, 2005. "Estimation of Long Memory in the Presence of a Smooth Nonparametric Trend," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 853-871, September.
- Velasco, Carlos, 1999. "Non-stationary log-periodogram regression," Journal of Econometrics, Elsevier, vol. 91(2), pages 325-371, August.
- Frederiksen, Per & Nielsen, Frank S. & Nielsen, Morten Ørregaard, 2012.
"Local polynomial Whittle estimation of perturbed fractional processes,"
Journal of Econometrics,
Elsevier, vol. 167(2), pages 426-447.
- Per Frederiksen & Frank S. Nielsen & Morten Ørregaard Nielsen, 2008. "Local polynomial Whittle estimation of perturbed fractional processes," CREATES Research Papers 2008-29, School of Economics and Management, University of Aarhus.
- Per Frederiksen & Frank S. Nielsen & Morten Ørregaard Nielsen, 2009. "Local polynomial Whittle estimation of perturbed fractional processes," Working Papers 1218, Queen's University, Department of Economics.
- Juan J. Dolado & Jesus Gonzalo & Laura Mayoral, 2005.
"What is What? A Simple Time-Domain Test of Long-memory vs. Structural Breaks,"
258, Barcelona Graduate School of Economics.
- Juan J. Dolado & Jesús Gonzalo & Laura Mayoral, 2005. "What is what?: A simple time-domain test of long-memory vs. structural breaks," Economics Working Papers 954, Department of Economics and Business, Universitat Pompeu Fabra.
- Fabrizio Iacone, 2010. "Local Whittle estimation of the memory parameter in presence of deterministic components," Journal of Time Series Analysis, Wiley Blackwell, vol. 31(1), pages 37-49, 01.
- Iliyan GEORGIEV, 2002. "Functional Weak Limit Theory for Rare Outlying Events," Economics Working Papers ECO2002/22, European University Institute.
- Velasco, Carlos, 2000. "Non-Gaussian Log-Periodogram Regression," Econometric Theory, Cambridge University Press, vol. 16(01), pages 44-79, February.
- Katsumi Shimotsu, 2006. "Simple (but effective) tests of long memory versus structural breaks," Working Papers 1101, Queen's University, Department of Economics.
- Andersen T. G & Bollerslev T. & Diebold F. X & Labys P., 2001. "The Distribution of Realized Exchange Rate Volatility," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 42-55, March.
- 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.
When requesting a correction, please mention this item's handle: RePEc:cup:etheor:v:29:y:2013:i:06:p:1196-1237_00. 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: (Keith Waters)
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.