Bivariate FIGARCH and Fractional Cointegration

Celso Brunetti () and Christopher L. Gilbert
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Christopher L. Gilbert: Queen Mary and Westfield College, University of London

No 408, Working Papers from Queen Mary, University of London, Department of Economics

Abstract: We consider the modelling of volatility on closely related markets. Univariate fractional volatility (FIGARCH) models are now standard, as are multivariate GARCH models. In this paper we adopt a combination of the two methodologies. There is as yet little consensus on the methodology for testing for fractional cointegration. The contribution of this paper is to demonstrate the feasibility of estimating and testing cointegrated bivariate FIGARCH models. We apply these methods to volatility on the NYMEX and IPE crude oil markets. We find a common order of fractional integration for the two volatility processes and confirm that they are fractionally cointegrated. An estimated error correction FIGARCH model indicates that the preponderant adjustment is of the IPE towards NYMEX.

Keywords: FIGARCH; Fractional Cointegration; ECM (search for similar items in EconPapers)
JEL-codes: G0 C2 C3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 1999-12

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Journal Article: Bivariate FIGARCH and fractional cointegration (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:qmw:qmwecw:wp408

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