Fractionally Integrated Models for Volatility: A Review

NONLINEAR FINANCIAL ECONOMETRICS: MARKOV SWITCHING MODELS, PERSISTENCE AND NONLINEAR COINTEGRATION, pp. 104-123, Palgrave Macmillan, 2011

Posted: 31 Jan 2011

See all articles by Dean Fantazzini

Dean Fantazzini

Moscow School of Economics, Moscow State University; National Research University Higher School of Economics

Date Written: January 30, 2011

Abstract

Many empirical studies showed the strong degree of persistence of shocks to the conditional variance process. In this case, the distinction between stationary and unit root processes may be too restrictive, since the propagation of shocks occurs at an exponential rate of decay in a stationary process, while the persistence of shocks is infinite for a unit root process. Fractional models have been recently proposed in the financial literature to fill the gap between short and complete persistence. The main motivation to use this kind of models is that the propagation of shocks occurs at a slow hyperbolic rate of decay, as opposed to the exponential decay associated with the stationary and invertible ARMA class of processes, or the infinite persistence resulting from non-stationary processes. We review the main developments of this growing field of research, trying to highlight the advantages and disadvantages of the main approaches proposed so far.

Keywords: Fractional Integrated Models, GARCH, EGARCH, Threshold-GARCH, APARCH, IGARCH, FIGARCH, FIEGARCH, FIAPARCH, HYGARCH

JEL Classification: C22, C51, C52

Suggested Citation

Fantazzini, Dean, Fractionally Integrated Models for Volatility: A Review (January 30, 2011). NONLINEAR FINANCIAL ECONOMETRICS: MARKOV SWITCHING MODELS, PERSISTENCE AND NONLINEAR COINTEGRATION, pp. 104-123, Palgrave Macmillan, 2011. Available at SSRN: https://ssrn.com/abstract=1751573

Dean Fantazzini (Contact Author)

Moscow School of Economics, Moscow State University ( email )

GSP-2, Leninskie Gory
Moscow, 119992
Russia
+7 495 5105256 (Phone)
+7 495 5105267 (Fax)

HOME PAGE: https://sites.google.com/site/deanfantazzini/

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

HOME PAGE: http://www.hse.ru/org/persons/11532644

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