The Local Whittle Estimator of Long Memory Stochastic Volatility

29 Pages Posted: 3 Nov 2008

See all articles by Clifford M. Hurvich

Clifford M. Hurvich

Stern School of Business, New York University; New York University (NYU) - Department of Information, Operations, and Management Sciences

Bonnie K. Ray

IBM Corporation - Thomas J. Watson Research Center

Multiple version iconThere are 4 versions of this paper

Date Written: April 2001

Abstract

We propose a new semiparametric estimator of the degree of persistence in volatility forlong memory stochastic volatility (LMSV) models. The estimator uses the periodogram ofthe log squared returns in a local Whittle criterion which explicitly accounts for the noise term in the LMSV model. Finite-sample and asymptotic standard errors for the estimator are provided. An extensive simulation study reveals that the local Whittle estimator is much less biased and yields more accurate confidence intervals than the widely-used GPH estimator. In an empirical analysis of the daily Deutschemark/Dollar exchange rate, the newestimator indicates stronger persistence in volatility than the GPH estimator, provided that a large number of frequencies is used.

Keywords: long-range dependence, nonlinearity, semiparametric estimation

Suggested Citation

Hurvich, Clifford M. and Ray, Bonnie K., The Local Whittle Estimator of Long Memory Stochastic Volatility (April 2001). Statistics Working Papers Series, Vol. , pp. -, 2001. Available at SSRN: https://ssrn.com/abstract=1293624

Clifford M. Hurvich (Contact Author)

Stern School of Business, New York University ( email )

44 West 4th Street
New York, NY 10012-1126
United States

New York University (NYU) - Department of Information, Operations, and Management Sciences

44 West Fourth Street
New York, NY 10012
United States

Bonnie K. Ray

IBM Corporation - Thomas J. Watson Research Center ( email )

Route 134
Kitchawan Road
Yorktown Heights, NY 10598
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
42
Abstract Views
435
PlumX Metrics