APPLICATION OF A SHORT MEMORY MODEL WITH RANDOM LEVEL SHIFTS TO THE VOLATILITY OF LATIN AMERICAN STOCK MARKET RETURNS

APPLICATION OF A SHORT MEMORY MODEL WITH RANDOM LEVEL SHIFTS TO THE VOLATILITY OF LATIN AMERICAN STOCK MARKET RETURNS

Empirical research indicates that the volatility of stock return time series has long memory. However, it has been demonstrated that short memory processes contaminated by random level shifts can often be confused with long memory, a feature often referred to as spurious long memory. This paper repr...

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Autores principales: Rodríguez,Gabriel, Tramontana Tocto,Roxana
Lenguaje:English
Publicado: Pontificia Universidad Católica de Chile. Instituto de Economía. 2015
Materias:
Volatility
long memory
random level shifts
forecasting
Latin America
Acceso en línea:http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0719-04332015000200003
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spelling oai:scielo:S0719-043320150002000032016-01-08APPLICATION OF A SHORT MEMORY MODEL WITH RANDOM LEVEL SHIFTS TO THE VOLATILITY OF LATIN AMERICAN STOCK MARKET RETURNSRodríguez,GabrielTramontana Tocto,Roxana Volatility long memory random level shifts forecasting Latin America Empirical research indicates that the volatility of stock return time series has long memory. However, it has been demonstrated that short memory processes contaminated by random level shifts can often be confused with long memory, a feature often referred to as spurious long memory. This paper represents an empirical study of the random level shift (RLS) model for the volatility of daily stock return data for five Latin American countries. This model consists of the sum of a short term memory component and a level shift component that is governed by a Bernoulli process with a shift probability α. The results suggest that level shifts in the volatility of daily stock return data are infrequent but when taken into account, the long memory characteristic and GARCH effects disappear. An out-of-sample forecasting exercise is also provided.info:eu-repo/semantics/openAccessPontificia Universidad Católica de Chile. Instituto de Economía.Latin american journal of economics v.52 n.2 20152015-12-01text/htmlhttp://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0719-04332015000200003en10.7764/LAJE.52.2.185
institution Scielo Chile
collection Scielo Chile
language English
topic Volatility
long memory
random level shifts
forecasting
Latin America
spellingShingle Volatility
long memory
random level shifts
forecasting
Latin America
Rodríguez,Gabriel
Tramontana Tocto,Roxana
APPLICATION OF A SHORT MEMORY MODEL WITH RANDOM LEVEL SHIFTS TO THE VOLATILITY OF LATIN AMERICAN STOCK MARKET RETURNS
description Empirical research indicates that the volatility of stock return time series has long memory. However, it has been demonstrated that short memory processes contaminated by random level shifts can often be confused with long memory, a feature often referred to as spurious long memory. This paper represents an empirical study of the random level shift (RLS) model for the volatility of daily stock return data for five Latin American countries. This model consists of the sum of a short term memory component and a level shift component that is governed by a Bernoulli process with a shift probability α. The results suggest that level shifts in the volatility of daily stock return data are infrequent but when taken into account, the long memory characteristic and GARCH effects disappear. An out-of-sample forecasting exercise is also provided.
author Rodríguez,Gabriel
Tramontana Tocto,Roxana
author_facet Rodríguez,Gabriel
Tramontana Tocto,Roxana
author_sort Rodríguez,Gabriel
title APPLICATION OF A SHORT MEMORY MODEL WITH RANDOM LEVEL SHIFTS TO THE VOLATILITY OF LATIN AMERICAN STOCK MARKET RETURNS
title_short APPLICATION OF A SHORT MEMORY MODEL WITH RANDOM LEVEL SHIFTS TO THE VOLATILITY OF LATIN AMERICAN STOCK MARKET RETURNS
title_full APPLICATION OF A SHORT MEMORY MODEL WITH RANDOM LEVEL SHIFTS TO THE VOLATILITY OF LATIN AMERICAN STOCK MARKET RETURNS
title_fullStr APPLICATION OF A SHORT MEMORY MODEL WITH RANDOM LEVEL SHIFTS TO THE VOLATILITY OF LATIN AMERICAN STOCK MARKET RETURNS
title_full_unstemmed APPLICATION OF A SHORT MEMORY MODEL WITH RANDOM LEVEL SHIFTS TO THE VOLATILITY OF LATIN AMERICAN STOCK MARKET RETURNS
title_sort application of a short memory model with random level shifts to the volatility of latin american stock market returns
publisher Pontificia Universidad Católica de Chile. Instituto de Economía.
publishDate 2015
url http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0719-04332015000200003
work_keys_str_mv AT rodriguezgabriel applicationofashortmemorymodelwithrandomlevelshiftstothevolatilityoflatinamericanstockmarketreturns
AT tramontanatoctoroxana applicationofashortmemorymodelwithrandomlevelshiftstothevolatilityoflatinamericanstockmarketreturns
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