Long Memory and Regime Switch
Journal
經濟論文叢刊
Journal Volume
32
Journal Issue
2
Pages
193-232
Date Issued
2004-06
Date
2004-06
Author(s)
謝俊魁
Abstract
The strong persistence in volatility of a variety of financial time series is well known. To determine whether this persistence can be characterized as "long memory" is important in both financial and econometric modelling. In this pa per, after summarizing Hamilton and Susmel's (1994) regime switching SWARCH model and BBM's (1996) long memory FIGARCH for volatility; we propose a general SW(k)-FIGARCH-L(0,d,0) model that allows the estimation of both regime switching parameters and the long memory parameter. In such a frame work we are able to test whether the volatility still has long memory after regime switching has been considered and we show that regime switching in volatility can result in spurious long memory. Furthermore, we find the proposed model also solves one of the problems with the standard SWARCH model that squared residuals obtained from the SWARCH model estimation usually are highly correlated, which implies the simple regime switching mechanism is not able to characterize all the dynamics in volatility. Based on these encouraging results, we believe the proposed model is a promising tool in analyzing financial data. Our empirical analysis of the TAIEX data shows that the long memory in their volatility will reduce to intermediate memory after regime switching is considered, which represents an interesting example of spurious long memory in volatility that is caused by the regime switching.
Subjects
FIGARCH模型
Markov-Switching模型
SWARCH模型
SW(k)-FIGARCH-L模型
緩長記憶
FIGARCH model
markov-switching model
SWARCH model
SW(k)-FIGARCH-L model
long memory
Type
journal article