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Modelling long-memory volatilities with leverage effect: ALMSV versus FIEGARCH

Helena Veiga () and Esther Ruiz

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: In this paper, we propose a new stochastic volatility model, called A-LMSV, to cope simultaneously with the leverage effect and long-memory. We derive its statistical properties and compare them with the properties of the FIEGARCH model. We show that the dependence of the autocorrelations of squares on the parameters measuring the asymmetry and the persistence is different in both models. The kurtosis and autocorrelations of squares do not depend on the asymmetry in the A-LMSV model while they increase with the asymmetry in the FIEGARCH model. Furthermore, the autocorrelations of squares increase with the persistence in the A-LMSV model and decrease in the FIEGARCH model. On the other hand, the autocorrelations of absolute returns increase with the magnitude of the asymmetry in the FIEGARCH model while they can increase or decrease depending on the sign of the asymmetry in the L-MSV model. Finally, the cross-correlations between squares and original observations are, in general, larger in the FIEGARCH model than in the ALMSV model. The results are illustrated by fitting both models to represent the dynamic evolution of volatilities of daily returns of the S and P500 and DAX indexes.

New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2006-10
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Journal Article: Modelling long-memory volatilities with leverage effect: A-LMSV versus FIEGARCH (2008) Downloads
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