Department of Economics and Business Economics

Long Memory in Stock Market Volatility and the Volatility-in-Mean Effect: The FIEGARCH-M Model

Research output: Working paperResearch

  • School of Economics and Management
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 S&P 500 index which documents the empirical
relevance of our model
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages17
Publication statusPublished - 2007

    Research areas

  • FIEGARCH, financial leverage, GARCH, long memory, risk-return tradeoff,

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