A new approach to detect long memory by fractional integration or short memory by structural break

Yirong Huang; Liang Ding; Yan Lin; Yi Luo; Yirong Huang; Liang Ding; Yan Lin; Yi Luo

doi:10.3934/math.2024798

AIMS Mathematics

2024, Volume 9, Issue 6: 16468-16485. doi: 10.3934/math.2024798

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A new approach to detect long memory by fractional integration or short memory by structural break

1.
School of Business, Sun Yat-sen University, Guangzhou 510275, China
2.
School of English for International Business, Guangdong University of Foreign Studies, Guangzhou 510420, China
3.
Management College, Guangdong Polytechnic Normal University, Guangzhou 510665, China

Received: 26 December 2023 Revised: 07 April 2024 Accepted: 11 April 2024 Published: 10 May 2024
MSC : G17, G17, C10, C32

Long memory in test statistics can either originate from fractional integration or be spuriously induced by a short memory process with a structural break. This research estimated and detected long memory from the two causes by simulations and empirical analysis. The simulation results showed that fractional integration and structural break processes could demonstrate long memory properties. The 2ELW estimator was stable for fractional integration but not stable for time series with structural breaks. The modified W statistic based on 2ELW was efficient in discriminating fractional integration and structural breaks. Moreover, we found that six volatility time series of stock indexes and individual stocks in the Chinese market experience significant long memory and structural breaks, and the fractional differencing parameter is overestimated without controlling structural breaks.
- long memory,
- fractional integration,
- structural break,
- volatility,
- stock market
Citation: Yirong Huang, Liang Ding, Yan Lin, Yi Luo. A new approach to detect long memory by fractional integration or short memory by structural break[J]. AIMS Mathematics, 2024, 9(6): 16468-16485. doi: 10.3934/math.2024798

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Abstract

Long memory in test statistics can either originate from fractional integration or be spuriously induced by a short memory process with a structural break. This research estimated and detected long memory from the two causes by simulations and empirical analysis. The simulation results showed that fractional integration and structural break processes could demonstrate long memory properties. The 2ELW estimator was stable for fractional integration but not stable for time series with structural breaks. The modified W statistic based on 2ELW was efficient in discriminating fractional integration and structural breaks. Moreover, we found that six volatility time series of stock indexes and individual stocks in the Chinese market experience significant long memory and structural breaks, and the fractional differencing parameter is overestimated without controlling structural breaks.

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