Long memory in stock market volatility and the volatility-in-mean effect: the FIEGARCH-M model

Bent Jesper Christensen, Jie Zhu and Morten Orregaard Nielsen

No 273693, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: We extend the fractionally integrated exponential GARCH (FIEGARCH) model for daily stock return data with long memory in return volatility of Bollerslev and Mikkelsen (1996) by introducing a possible volatility-in-mean effect. To avoid that the long memory property of volatility carries over to returns, we consider a filtered FIEGARCH-in-mean (FIEGARCH-M) effect in the return equation. The filtering of the volatility-in-mean component thus allows the co-existence of long memory in volatility and short memory in returns. We present an application to the daily CRSP value-weighted cum-dividend stock index return series from 1926 through 2006 which documents the empirical relevance of our model. The volatility-in- mean effect is significant, and the FIEGARCH-M model outperforms the original FIEGARCH model and alternative GARCH-type specifications according to standard criteria.

Keywords: Financial Economics; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 23
Date: 2009-06
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Related works:
Journal Article: Long memory in stock market volatility and the volatility-in-mean effect: The FIEGARCH-M Model (2010)
Working Paper: Long Memory In Stock Market Volatility And The Volatility-in-mean Effect: The Fiegarch-m Model (2009)
Working Paper: Long Memory in Stock Market Volatility and the Volatility-in-Mean Effect: The FIEGARCH-M Model (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:273693

DOI: 10.22004/ag.econ.273693

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