Bias-Reduced Estimation of Long-Memory Stochastic Volatility

Per Frederiksen and Morten Nielsen

Journal of Financial Econometrics, 2008, vol. 6, issue 4, 496-512

Abstract: We propose to use a variant of the local polynomial Whittle estimator to estimate the memory parameter in volatility for long-memory stochastic volatility models with potential nonstationarity in the volatility process. We show that the estimator is asymptotically normal and capable of obtaining bias reduction as well as a rate of convergence arbitrarily close to the parametric rate, n-super-1-2. A Monte Carlo study is conducted to support the theoretical results, and an analysis of daily exchange rates demonstrates the empirical usefulness of the estimators. Copyright The Author 2008. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Date: 2008
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Working Paper: Bias-reduced estimation of long memory stochastic volatility (2008)
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