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Aggregation of Short-Memory Processes, the Volatility of Stock Market Return Indices and Long Memory

Michelle Barnes

No 1998-10, School of Economics Working Papers from University of Adelaide, School of Economics

Abstract: Monte Carlo simulation methods are used to generate independent series with short memory in volatility. Partial sums of there short memory series are formed and the volatilities of these partial sums are tested for long memory. Aggregating series with short memory valatilities results in indices that exhibit long memeory in volatility. As no long memory inherent in the volatility of the individual series themselves, it is clear that long memory arises solely from the process of aggregation. Such partial sums have empirical analogues, such as the SP 500, the Nikkei, ect. This study also performs long memory tests on the volatility of individual return series from GRSP.

Keywords: simulation; economic models; financial market; time series (search for similar items in EconPapers)
JEL-codes: C30 C32 (search for similar items in EconPapers)
Pages: 68 pages
Date: 1998
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