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Out-of-sample forecast errors in misspecific perturbed long memory processes

Listed author(s):
  • Miguel Arranz
  • Francesc Marmol

    ()

The correlogram is not a useful diagnosis tool in the presence of long-memory or long range depedent time series. The aim of this paper is to illustrate this claim by examining the relative increase in mean square forecast error from fitting a weakly stationary process to the series of interest hen in fact the true model is a so-called perturbed long-memory process recently introduced by Granger and Marmol (1997). This model has the property of being unidentifiable from a white noise process on the basis of the correlogram and the usual rule-of thumbs in the Box-Jenkins methodology. We prove that this kind of misspecification can lead to serious errors in terms of forecasting.

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File URL: http://hdl.handle.net/10.1007/s003620100071
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Article provided by Springer in its journal Statistical Papers.

Volume (Year): 42 (2001)
Issue (Month): 4 (October)
Pages: 423-436

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Handle: RePEc:spr:stpapr:v:42:y:2001:i:4:p:423-436
DOI: 10.1007/s003620100071
Contact details of provider: Web page: http://www.springer.com

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  1. Smith, Jeremy & Taylor, Nick & Yadav, Sanjay, 1995. "Comparing the Bias and Misspecification in Arfima Models," The Warwick Economics Research Paper Series (TWERPS) 442, University of Warwick, Department of Economics.
  2. Breidt, F. Jay & Crato, Nuno & de Lima, Pedro, 1998. "The detection and estimation of long memory in stochastic volatility," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 325-348.
  3. Andersson, Michael K., 1998. "On the Effects of Imposing or Ignoring Long Memory when Forecasting," SSE/EFI Working Paper Series in Economics and Finance 225, Stockholm School of Economics.
  4. Smith, Jeremy & Yadav, Sanjay, 1994. "Forecasting costs incurred from unit differencing fractionally integrated processes," International Journal of Forecasting, Elsevier, vol. 10(4), pages 507-514, December.
  5. Marmol, Francesc & Granger, C.W.J. (Clive William John), 1998. "The correlogram of a long memory process plus a simple noise," DES - Working Papers. Statistics and Econometrics. WS 9820, Universidad Carlos III de Madrid. Departamento de Estadística.
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