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Changing-regime volatility: a fractionally integrated SETAR model

  • Gilles Dufrenot
  • Dominique Guegan
  • Anne Peguin-Feissolle

This article presents a 2-regime SETAR model with different long-memory processes in both regimes. We briefly present the memory properties of this model and propose an estimation method. Such a process is applied to the absolute and squared returns of five stock indices. A comparison to simple ARFIMA models is made using some forecastibility criteria. Our empirical results suggest that our model offers an interesting alternative competing framework to describe the persistent dynamics in modelling the returns.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100600993778
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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 18 (2008)
Issue (Month): 7 ()
Pages: 519-526

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Handle: RePEc:taf:apfiec:v:18:y:2008:i:7:p:519-526
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  1. Beltratti, A. & Morana, C., 2006. "Breaks and persistency: macroeconomic causes of stock market volatility," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 151-177.
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  10. Guglielmo Maria Caporale & Luis A. Gil-Alana, 2004. "Non-Linearities And Fractional Integration In The Us Unemployment Rate," Public Policy Discussion Papers 04-17, Economics and Finance Section, School of Social Sciences, Brunel University.
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  13. Morana, Claudio & Beltratti, Andrea, 2002. "The effects of the introduction of the euro on the volatility of European stock markets," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2047-2064, October.
  14. Hamilton, James D & Gang, Lin, 1996. "Stock Market Volatility and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 573-93, Sept.-Oct.
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