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Weak Identification of Long Memory with Implications for Inference

Author

Listed:
  • Jia Li

    (Singapore Management University)

  • Peter C. B. Phillips

    (Yale University, University of Auckland, University of Southampton & Singapore Management University)

  • Shuping Shi

    (Department of Economics, Macquarie University)

  • Jun Yu

    (School of Economics and Lee Kong Chian School of Business, Singapore Management University)

Abstract

This paper explores weak identification issues arising in commonly used models of economic and financial time series. Two highly popular configurations are shown to be asymptotically observationally equivalent: one with long memory and weak autoregressive dynamics, the other with antipersistent shocks and a near-unit autoregressive root. We develop a data-driven semiparametric and identification-robust approach to inference that reveals such ambiguities and documents the prevalence of weak identification in many realized volatility and trading volume series. The identification-robust empirical evidence generally favors long memory dynamics in volatility and volume, a conclusion that is corroborated using social-media news flow data.

Suggested Citation

  • Jia Li & Peter C. B. Phillips & Shuping Shi & Jun Yu, 2022. "Weak Identification of Long Memory with Implications for Inference," Economics and Statistics Working Papers 8-2022, Singapore Management University, School of Economics.
    • Handle: RePEc:ris:smuesw:2022_008
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Long memory and weak ID
      by Francis Diebold in No Hesitations on 2022-09-03 16:42:00

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    Cited by:

    1. Carsten H. Chong & Viktor Todorov, 2024. "A nonparametric test for rough volatility," Papers 2407.10659, arXiv.org.

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    Keywords

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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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