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A New Test for Short Memory in Long Memory Time Series

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  • Timothy A. C. Hughes
  • Jaechoul Lee

Abstract

This article considers short memory characteristics in a long memory process. We derive new asymptotic results for the sample autocorrelation difference ratios. We used these results to develop a new portmanteau test that determines if short memory parameters are statistically significant. In simulations, the new test can detect short memory components more often than the Ljung-Box test when these short memory components are in fact within a long memory process. Interestingly, our test finds short memory autocorrelations in U.S. inflation rate data, whereas the Ljung-Box test fails to find these autocorrelations. Modeling these short memory autocorrelations of the inflation rate data leads to improved model accuracy and more precise prediction.

Suggested Citation

  • Timothy A. C. Hughes & Jaechoul Lee, 2015. "A New Test for Short Memory in Long Memory Time Series," The American Statistician, Taylor & Francis Journals, vol. 69(3), pages 182-190, August.
    • Handle: RePEc:taf:amstat:v:69:y:2015:i:3:p:182-190
    DOI: 10.1080/00031305.2015.1056829
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