Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099030 | Journal of Economic Dynamics and Control | 2009 | 16 Pages |
Abstract
This paper introduces a new long memory volatility process, denoted by adaptive FIGARCH, or A-FIGARCH , which is designed to account for both long memory and structural change in the conditional variance process. Structural change is modeled by allowing the intercept to follow the smooth flexible functional form due to Gallant (1984. The Fourier flexible form. American Journal of Agricultural Economics 66, 204-208). A Monte Carlo study finds that the A-FIGARCH model outperforms the standard FIGARCH model when structural change is present, and performs at least as well in the absence of structural instability. An empirical application to stock market volatility is also included to illustrate the usefulness of the technique.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Richard T. Baillie, Claudio Morana,