Structural Change and Spurious Persistence in Stochastic Volatility

Walter Krämer and Philip Messow

No 310, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: We extend the well established link between structural change and estimated persistence from GARCH to stochastic volatility (SV) models. Whenever structural changes in some model parameters increase the empirical autocorrelations of the squares of the underlying time series, the persistence in volatility implied by the estimated model parameters follows suit. This explains why stochastic volatility often appears to be more persistent when estimated from a larger sample as then the likelihood increases that there might have been some structural change in between.

Keywords: Persistence; stochastic volatility; structural change (search for similar items in EconPapers)
JEL-codes: C32 C58 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:310

DOI: 10.4419/86788357

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