Modelling persistent stationary processes in continuous time

Minsoo Jeong

Economic Modelling, 2022, vol. 109, issue C

Abstract: This paper presents a novel approach to model continuous time processes that capture two countervailing features of many financial time series: persistency and long term stationarity. The processes introduced by our models exhibit persistent behaviors observed typically in non-stationary time series, but they remain stationary instead of tending towards explosive paths. We provide a relevant statistical theory and its implications on inference and forecasting, presenting both simulation evidence and empirical backing for the existence of, as well as the characteristic behavior for, such a series in real financial time series data.

Keywords: Persistency; Stationarity; Diffusion; Markov chain; Forecasting; VaR (search for similar items in EconPapers)
JEL-codes: C13 C22 C51 G10 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:109:y:2022:i:c:s0264999322000220

DOI: 10.1016/j.econmod.2022.105776

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