SEMIFARMA-HYGARCH Modeling of Dow Jones Return Persistence

Mohamed Chikhi, Anne Peguin-Feissolle () and Michel Terraza ()
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Anne Peguin-Feissolle: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique
Michel Terraza: LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier

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Abstract: This paper analyzes the cyclical behavior of Dow Jones by testing the existence of long memory through a new class of semiparametric ARFIMA models with HYGARCH errors (SEMIFARMA-HYGARCH); this class includes nonparametric deterministic trend, stochastic trend, short-range and long-range dependence and long memory heteroscedastic errors. We study the daily returns of the Dow Jones from 1896 to 2006. We estimate several models and we find that the coefficients of the SEMIFARMA-HYGARCH model, including long memory coefficients for the equations of the mean and the conditional variance, are highly significant. The forecasting results show that the informational shocks have permanent effects on volatility and the SEMIFARMA-HYGARCH model has better performance over some other models for long and/or short horizons. The predictions from this model are also better than the predictions of the random walk model; accordingly, the weak efficiency assumption of financial markets seems violated for Dow Jones returns studied over a long period.

Keywords: kernel methodology; long memory; SEMIFARMA model; HYGARCH model; nonparametric deterministic trend (search for similar items in EconPapers)
Date: 2012-06
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00793203v1
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Related works:
Journal Article: SEMIFARMA-HYGARCH Modeling of Dow Jones Return Persistence (2013)
Working Paper: SEMIFARMA-HYGARCH Modeling of Dow Jones Return Persistence (2013)
Working Paper: SEMIFARMA-HYGARCH Modeling of Dow Jones Return Persistence (2012)
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