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Are feedback factors important in modelling financial data?

  • Veiga, Helena

This paper provides empirical evidence that continuous time models with one factor of volatility are, in some circumstances, able to fit the main characteristics of financial data and reports insights about the importance of introducing feedback factors for capturing the strong persistence caused by the presence of changes in the variance. We use the Efficient Method of Moments (EMM) by Gallant and Tauchen (1996) to estimate and to select among logarithmic models with one and two stochastic volatility factors (with and without feedback).

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File URL: http://e-archivo.uc3m.es/bitstream/handle/10016/232/ws060101.pdf?sequence=1
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Paper provided by Universidad Carlos III de Madrid. Departamento de Estadística in its series DES - Working Papers. Statistics and Econometrics. WS with number ws060101.

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Date of creation: Jan 2006
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Handle: RePEc:cte:wsrepe:ws060101
Contact details of provider: Web page: http://portal.uc3m.es/portal/page/portal/dpto_estadistica

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  1. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1992. "Stock Prices and Volume," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 199-242.
  2. Coppejans, Mark & Gallant, A. Ronald, 2000. "Cross Validated SNP Density Estimates," Working Papers 00-10, Duke University, Department of Economics.
  3. Elena Andreou & Eric Ghysels, 2002. "Detecting multiple breaks in financial market volatility dynamics," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(5), pages 579-600.
  4. Ait-Sahalia, Yacine, 1996. "Nonparametric Pricing of Interest Rate Derivative Securities," Econometrica, Econometric Society, vol. 64(3), pages 527-60, May.
  5. Ronald Gallant, A. & Tauchen, George, 1999. "The relative efficiency of method of moments estimators1," Journal of Econometrics, Elsevier, vol. 92(1), pages 149-172, September.
  6. BEINE, Michel & LAURENT, Sébastien, . "Central bank interventions and jumps in double long memory models of daily exchange rates," CORE Discussion Papers RP 1706, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Chernov, Mikhail & Gallant, A. Ronald & Ghysels, Eric & Tauchen, George, 2002. "Alternative Models for Stock Price Dynamic," Working Papers 02-03, Duke University, Department of Economics.
  8. repec:cup:etheor:v:12:y:1996:i:4:p:657-81 is not listed on IDEAS
  9. Granger, Clive W.J. & Hyung, Namwon, 1999. "Occasional Structural Breaks and Long Memory," University of California at San Diego, Economics Working Paper Series qt4d60t4jh, Department of Economics, UC San Diego.
  10. Gallant, A. Ronald & Tauchen, George, 1996. "Which Moments to Match?," Econometric Theory, Cambridge University Press, vol. 12(04), pages 657-681, October.
  11. Yacine Ait-Sahalia, 1995. "Testing Continuous-Time Models of the Spot Interest Rate," NBER Working Papers 5346, National Bureau of Economic Research, Inc.
  12. Michael W. Brandt & Pedro Santa-Clara, 2001. "Simulated Likelihood Estimation of Diffusions with an Application to Exchange Rate Dynamics in Incomplete Markets," NBER Technical Working Papers 0274, National Bureau of Economic Research, Inc.
  13. Diebold, Francis X. & Inoue, Atsushi, 2001. "Long memory and regime switching," Journal of Econometrics, Elsevier, vol. 105(1), pages 131-159, November.
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