Arbeitspapier

Asymmetries, breaks, and long-range dependence: An estimation framework for daily realized volatility

We study the simultaneous occurrence of long memory and nonlinear effects, such as structural breaks and thresholds, in autoregressive moving average (ARMA) time series models and apply our modeling framework to series of daily realized volatility. Asymptotic theory for the quasi-maximum likelihood estimator is developed and a sequence of model specification tests is described. Our framework allows for general nonlinear functions, including smoothly changing intercepts. The theoretical results in the paper can be applied to any series with long memory and nonlinearity. We apply the methodology to realized volatility of individual stocks of the Dow Jones Industrial Average during the period 1995 to 2005. We find strong evidence of nonlinear effects and explore different specifications of the model framework. A forecasting exercise demonstrates that allowing for nonlinearities in long memory models yields significant performance gains.

Language
Englisch

Bibliographic citation
Series: Texto para discussão ; No. 578

Classification
Wirtschaft
Subject
Realized volatility
structural breaks
smooth transitions
nonlinear models
long memory
persistence.

Event
Geistige Schöpfung
(who)
Hillebrand, Eric
Medeiros, Marcelo C.
Event
Veröffentlichung
(who)
Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia
(where)
Rio de Janeiro
(when)
2010

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Hillebrand, Eric
  • Medeiros, Marcelo C.
  • Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia

Time of origin

  • 2010

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