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Finite Sample Comparison of Parametric, Semiparametric, and Wavelet Estimators of Fractional Integration

  • Morten Ørregaard Nielsen

    ()

    (Queen's University and CREATES)

  • Per Frederiksen

    ()

    (Nordea Markets)

In this paper we compare through Monte Carlo simulations the finite sample properties of estimators of the fractional differencing parameter, d. This involves frequency domain, time domain, and wavelet based approaches and we consider both parametric and semiparametric estimation methods. The estimators are briefly introduced and compared, and the criteria adopted for measuring finite sample performance are bias and root mean squared error. Most importantly, the simulations reveal that 1) the frequency domain maximum likelihood procedure is superior to the time domain parametric methods, 2) all the estimators are fairly robust to conditionally heteroscedastic errors, 3) the local polynomial Whittle and bias reduced log-periodogram regression estimators are shown to be more robust to short-run dynamics than other semiparametric (frequency domain and wavelet) estimators and in some cases even outperform the time domain parametric methods, and 4) without sufficient trimming of scales the wavelet based estimators are heavily biased.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1189.pdf
File Function: First version 2005
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1189.

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Length: 55 pages
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:qed:wpaper:1189
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  12. ANDREWS, DONALD W & Sun, Yixiao X, 2002. "Adaptive Local Polynomial Whittle Estimation of Long-Range Dependence," University of California at San Diego, Economics Working Paper Series qt9wt048tt, Department of Economics, UC San Diego.
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  19. Andrews, Donald W.K. & Lieberman, Offer, 2005. "Valid Edgeworth Expansions For The Whittle Maximum Likelihood Estimator For Stationary Long-Memory Gaussian Time Series," Econometric Theory, Cambridge University Press, vol. 21(04), pages 710-734, August.
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