An improved FIGARCH model with the fractional differencing operator (1-νL)d

Qunxing Pan, Peng Li and Xiuli Du

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: In this study, we propose a new volatility model called the product memory GARCH model by replacing (1 − L)d in the FIGARCH model of Baillie et al. (1996) with (1 − νL)d for 0 ≤ ν ≤ 1, where the impulse response function in its ARCH(∞) process has a decay rate in the form of the product of a geometric memory rate and a hyperbolic memory rate when the lags increase. Under the ARCH(∞) framework, the non-negativity constraints, the existence of the second, fourth, sixth, and eighth moments, and the memory length are investigated, and the Gaussian quasi-maximum likelihood estimation is also discussed. This improved model is of considerable significance in the evolution of GARCH-type models and financial econometrics.

Keywords: ARCH(∞) process; FIGARCH model; Product memory GARCH model; Financial time series (search for similar items in EconPapers)
JEL-codes: C22 G11 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003471

DOI: 10.1016/j.frl.2023.103975

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