Abstract #301892

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JSM 2003 Abstract #301892
Activity Number: 233
Type: Topic Contributed
Date/Time: Tuesday, August 5, 2003 : 10:30 AM to 12:20 PM
Sponsor: Business & Economics Statistics Section
Abstract - #301892
Title: Level Shifts and the Illusion of Long Memory in Economic Time Series
Author(s): Aaron Smith*+
Companies: University of California
Address: Dept. of Agricultural and Resource Economics, Davis, CA, 95616-5270,
Keywords: structural breaks ; mean shift ; long memory
Abstract:

When applied to time series processes containing occasional level shifts, the log-periodogram (GPH) estimator often finds long memory. For a stationary short-memory process with rare mean shifts, I show that the GPH estimator is substantially biased, and I derive an approximation to this bias. The asymptotic bias lies on the (0,1) interval, with the exact value depending on the ratio of the expected number of breaks to a user-defined bandwidth parameter. I use this result to formulate the modified GPH estimator, which has a markedly lower bias. I apply this new estimator to the price of soybeans and to stock market volatility.

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