Changing-regime volatility: A fractionally integrated SETAR model

Journal article: This paper presents a 2-regime SETAR model with different long-memory processes in both regimes. We briefly present the memory properties of this model and propose an estimation method. Such a process is applied to the absolute and squared returns of five stock indices. A comparison with simple FARIMA models is made using some forecastibility criteria. Our empirical results suggest that our model offers an interesting alternative competing framework to describe the persistent dynamics in modeling the returns.

Author(s)

Gilles Dufrenot, Dominique Guegan, Anne Peguin-Feissolle

Journal
  • Applied Financial Economics
Date of publication
  • 2008
Keywords
  • SETAR
  • Long-memory
  • Stock indices
  • Forecasting
Pages
  • 519-526
Version
  • 1
Volume
  • 18