In recent years fractionally differenced processes have received a great deal of attention due to its flexibility in financial applications with long memory. This paper considers a class of models generated by Gegenbauer polynomials, incorporating the long memory in stochastic volatility (SV) components in order to develop the General Long Memory SV (GLMSV) model. We examine the statistical properties of the new model, suggest using the spectral likelihood estimation for long memory processes, and investigate the finite sample properties via Monte Carlo experiments. We apply the model to three exchange rate return series. Overall, the results of the out-of-sample forecasts show the adequacy of the new GLMSV model.

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Econometric Institute Research Papers
Erasmus School of Economics

Peiris, S., Asai, M., & McAleer, M. (2016). Estimating and Forecasting Generalized Fractional Long Memory Stochastic Volatility Models (No. EI2016-27). Econometric Institute Research Papers. Retrieved from