Bias-Reduced Estimation of Long Memory Stochastic Volatility
CREATES Research Paper No. 2008-35
17 Pages Posted: 24 Jun 2008 Last revised: 1 Jul 2008
There are 2 versions of this paper
Bias-Reduced Estimation of Long Memory Stochastic Volatility
Bias-Reduced Estimation of Long-Memory Stochastic Volatility
Date Written: June 24, 2008
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, n1=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.
Keywords: Bias reduction, local Whittle estimation, long memory stochastic volatility model
JEL Classification: C14, C22
Suggested Citation: Suggested Citation
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