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Stochastic volatility in the Spanish stock market: a long memory model with a structural break

Author

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  • Luis Gil-Alana
  • Juncal Cunado
  • Fernando Perez De Gracia

Abstract

In this paper, we examine the stochastic volatility behaviour in the Spanish stock market returns over the time period 2 January 2001 - 12 May 2006. We use a long memory model that takes into account the existence of an endogenous structural break. When no breaks are taken into account the results show that the orders of integration of the absolute and squared return values (which are used as proxies of volatility) are higher than 0 but smaller than 0.5, implying that the stochastic volatility is stationary but long memory. If a break is considered, long memory is also found in the two sub-samples, with higher orders of integration before the break, which takes place at around 2003 for the IBEX, and at 2004 for the less liquid assets IGBM.

Suggested Citation

  • Luis Gil-Alana & Juncal Cunado & Fernando Perez De Gracia, 2008. "Stochastic volatility in the Spanish stock market: a long memory model with a structural break," The European Journal of Finance, Taylor & Francis Journals, vol. 14(1), pages 23-31.
    • Handle: RePEc:taf:eurjfi:v:14:y:2008:i:1:p:23-31
    DOI: 10.1080/13518470701773650
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    Cited by:

    1. J. Cuñado & L. Gil-Alana & F. Gracia, 2009. "US stock market volatility persistence: evidence before and after the burst of the IT bubble," Review of Quantitative Finance and Accounting, Springer, vol. 33(3), pages 233-252, October.

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