Fractional Cointegration In StochasticVolatility Models
Asset returns are frequently assumed to be determined by one or more commonfactors. We consider a bivariate factor model, where the unobservable commonfactor and idiosyncratic errors are stationary and serially uncorrelated, but havestrong dependence in higher moments. Stochastic volatility models for the latentvariables are employed, in view of their direct application to asset pricing models.Assuming the underlying persistence is higher in the factor than in the errors, afractional cointegrating relationship can be recovered by suitable transformation ofthe data. We propose a narrow band semiparametric estimate of the factorloadings, which is shown to be consistent with a rate of convergence, and its finitesample properties are investigated in a Monte Carlo experiment.
|Date of creation:||May 2007|
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"Estimating Long Memory in Volatility,"
Econometric Society, vol. 73(4), pages 1283-1328, 07.
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STICERD - Econometrics Paper Series
/2006/502, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Javier Hualde & Peter Robinson, . "Semiparametric Estimation of Fractional Cointegration," Faculty Working Papers 07/06, School of Economics and Business Administration, University of Navarra.
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