Please use this identifier to cite or link to this item: http://buratest.brunel.ac.uk/handle/2438/977
Title: Testing Of Nonstationarities In The Unit Circle,Long Memory Processes And Day Of The Week Effects In Financial Data
Authors: Caporale, GM
Gil-Alana, LA
Nazarski, M
Keywords: Fractional Integration; Seasonality; Long Memory; Day of the Week Effects;;Monte Carlo Simulations
Issue Date: 2004
Publisher: Brunel University
Citation: Economics and Finance Working papers, Brunel University, 04-20
Abstract: This paper examines a version of the tests of Robinson (1994) that enables one to test models of the form (1-Lk)dxt = ut, where k is an integer value, d may be any real number, and ut is I(0). The most common cases are those with k = 1 (unit or fractional roots) and k = 4 and 12 (seasonal unit or fractional models). However, we extend the analysis to cover situations such as (1-L5)d xt = ut, which might be relevant, for example, in the context of financial time series data. We apply these techniques to the daily Eurodollar rate and the Dow Jones index, and find that for the former series the most adequate specifications are either a pure random walk or a model of the form xt = xt-5 + εt, implying in both cases that the returns are completely unpredictable. In the case of the Dow Jones index, a model of the form (1-L5)d xt = ut is selected, with d constrained between 0.50 and 1, implying nonstationarity and mean-reverting behaviour.
URI: http://bura.brunel.ac.uk/handle/2438/977
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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