Fractional Integration and Cointegration in US Financial Time Series Data

43 Pages Posted: 27 Apr 2011

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

Date Written: April 27, 2011

Abstract

This paper examines several US monthly financial time series data using fractional integration and cointegration techniques. The univariate analysis based on fractional integration aims to determine whether the series are I(1) (in which case markets might be efficient) or alternatively I(d) with d < 1, which implies mean reversion. The multivariate framework exploiting recent developments in fractional cointegration allows to investigate in greater depth the relationships between financial series. We show that there exist many (fractionally) cointegrated bivariate relationships among the variables examined.

Keywords: fractional integration, long-range dependence, fractional cointegration, financial data

JEL Classification: C220, G100

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A., Fractional Integration and Cointegration in US Financial Time Series Data (April 27, 2011). CESifo Working Paper Series No. 3416, Available at SSRN: https://ssrn.com/abstract=1824176

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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German Institute for Economic Research (DIW Berlin) ( email )

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Berlin, 10117
Germany

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

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