Abstract
The main motivation to use fractionally integrated I(d) models is that the propagation of shocks in these processes occurs at a slow hyperbolic rate of decay, as opposed to the exponential decay associated with the I(0) stationary and invertible ARMA class of processes, or the infinite persistence resulting from an I(1) process. In this regard, many empirical studies have showed the extreme degree of persistence of shocks to the conditional variance process. Therefore, fractionally integrated models allow for a proper modelling of the long-run dependencies in the modelling of the conditional variance.
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© 2011 Dean Fantazzini
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Fantazzini, D. (2011). Fractionally Integrated Models for Volatility: A Review. In: Gregoriou, G.N., Pascalau, R. (eds) Nonlinear Financial Econometrics: Markov Switching Models, Persistence and Nonlinear Cointegration. Palgrave Macmillan, London. https://doi.org/10.1057/9780230295216_5
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DOI: https://doi.org/10.1057/9780230295216_5
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