SEMIFARMA-HYGARCH Modeling of Dow Jones Return Persistence

Mohamed Chikhi, Anne Péguin-Feissolle () and Michel Terraza ()
Additional contact information
Anne Péguin-Feissolle: CNRS, Greqam, http://www.greqam.fr/en/users/peguin-feissolle#profile-chercheur
Michel Terraza: Université Montpellier I, Lameta

No 1214, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: This paper analyzes the cyclical behavior of Dow Jones by testing the existence of long memory through a new class of semiparametric ARFIMA models with HYGARCH errors (SEMIFARMA-HYGARCH); this class includes nonparametric deterministic trend, stochastic trend, short-range and long-range dependence and long memory heteroscedastic errors. We study the daily returns of the Dow Jones from 1896 to 2006. We estimate several models and we find that the coefficients of the SEMIFARMA-HYGARCH model, including long memory coefficients for the equations of the mean and the conditional variance, are highly significant. The forecasting results show that the informational shocks have permanent effects on volatility and the SEMIFARMA-HYGARCH model has better performance over some other models for long and/or short horizons. The predictions from this model are also better than the predictions of the random walk model; accordingly, the weak efficiency assumption of financial markets seems violated for Dow Jones returns studied over a long period.

Keywords: SEMIFARMA model; HYGARCH model; nonparametric deterministic trend; kernel methodology; long memory. (search for similar items in EconPapers)
JEL-codes: C14 C22 C58 G17 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2012-06
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: SEMIFARMA-HYGARCH Modeling of Dow Jones Return Persistence (2013)
Working Paper: SEMIFARMA-HYGARCH Modeling of Dow Jones Return Persistence (2013)
Working Paper: SEMIFARMA-HYGARCH Modeling of Dow Jones Return Persistence (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:1214

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