English, Article, Journal or magazine article edition: Long Memory in Stock Market Volatility and the Volatility-in-Mean Effect: The FIEGARCH-M Model Bent Jesper Christensen; Morten Ørregaard Nielsen; Jie Zhu

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Bookmark: http://trove.nla.gov.au/version/66419
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Long memory in stock market volatility and the volatility-in-mean effect: the FIEGARCH-M model
Author
  • Bent Jesper Christensen
  • Morten Ørregaard Nielsen
  • Jie Zhu
Physical Description
  • preprint
Notes
  • RePEc:aah:create:2007-10
  • We extend the fractionally integrated exponential GARCH (FIEGARCH) model for daily stock return data with long memory in return volatility of Bollerslev and Mikkelsen (1996) by introducing a possible volatility-in-mean effect. To avoid that the long memory property of volatility carries over to returns, we consider a filtered FIEGARCH-in-mean (FIEGARCH-M) effect in the return equation. The filtering of the volatility-in-mean component thus allows the co-existence of long memory in volatility and short memory in returns. We present an application to the daily CRSP value-weighted cum-dividend stock index return series from 1926 through 2006 which documents the empirical relevance of our model. The volatility-in-mean effect is significant, and the FIEGARCH-M model outperforms the original FIEGARCH model and alternative GARCH-type specifications according to standard criteria.
  • FIEGARCH, financial leverage, GARCH, long memory, risk-return tradeoff, stock returns, volatility feedback
  • RePEc:qed:wpaper:1207
Language
  • English
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