Mutual information and persistence in the stochastic volatility of market returns: An emergent market example
Bogdan Dima () and
Ştefana Maria Dima
International Review of Economics & Finance, 2017, vol. 51, issue C, 36-59
This paper studies the volatility in financial market returns. We obtain strong evidences in favor of a stochastic volatility model, including an MA(1) term in errors. Also, we estimate companion models build up in the framework of FIGARCH/HYGARCH class of models. Various methods for persistence checks are used. The results suggest that mutual information might be a valid alternative for persistence checking: significant deviations of mutual information from zero can be viewed as an evidence of long-run memory. We illustrate the case of Bucharest Stock Exchange's BET index, which displays a significant persistence in returns.
Keywords: Long-run memory; Stochastic volatility; Mutual information; Financial markets efficiency (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:51:y:2017:i:c:p:36-59
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