Title

Refined Inference on Long Memory in Realized Volatility

Publication Type

Journal Article

Publication Date

2008

Abstract

There is an emerging consensus in empirical finance that realized volatility series typically display long range dependence with a memory parameter around 0.4 (Andersen et al., 2001; Martens et al., 2004). The present article provides some illustrative analysis of how long memory may arise from the accumulative process underlying realized volatility. The article also uses results in Lieberman and Phillips (2004, 2005) to refine statistical inference about by higher order theory. Standard asymptotic theory has an error rate for error rejection probabilities, and the theory used here refines the approximation to an error rate of. The new formula is independent of unknown parameters, is simple to calculate and user-friendly. The method is applied to test whether the reported long memory parameter estimates of Andersen et al. (2001) and Martens et al. (2004) differ significantly from the lower boundary of nonstationary long memory, and generally confirms earlier findings.

Keywords

Edgeworth expansion; Long memory; Realized volatility

Discipline

Econometrics

Research Areas

Econometrics

Publication

Econometric Reviews

Volume

27

Issue

1

First Page

254

Last Page

267

ISSN

0747-4938

Identifier

10.1080/07474930701873374

Publisher

Taylor and Francis

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://dx.doi.org/10.1080/07474930701873374

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