FRACTIONAL COINTEGRATION IN STOCHASTIC VOLATILITY MODELS

da Silva, Afonso Gon?alves and Peter M. Robinson
Authors registered in the RePEc Author Service: Afonso Gonçalves da Silva

Econometric Theory, 2008, vol. 24, issue 05, pages 1207-1253

Abstract: Asset returns are frequently assumed to be determined by one or more common factors. We consider a bivariate factor model where the unobservable common factor and idiosyncratic errors are stationary and serially uncorrelated but have strong dependence in higher moments. Stochastic volatility models for the latent variables are employed, in view of their direct application to asset pricing models. Assuming that the underlying persistence is higher in the factor than in the errors, a fractional cointegrating relationship can be recovered by suitable transformation of the data. We propose a narrow band semiparametric estimate of the factor loadings, which is shown to be consistent with a rate of convergence, and its finite-sample properties are investigated in a Monte Carlo experiment.

Date: 2008

Downloads: (external link)
http://journals.cambridge.org/abstract_S0266466608080481 link to article abstract page (text/html)

Related works:
Working Paper: Fractional Cointegration In StochasticVolatility Models (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cup:etheor:v:24:y:2008:i:05:p:1207-1253_08

Access Statistics for this article

More articles in Econometric Theory from Cambridge University Press
Address: The Edinburgh Building, Shaftesbury Road, Cambridge CB2 2RU UK
Series data maintained by Mike Eden ().