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SEMIFARMA-HYGARCH Modeling of Dow Jones Return Persistence

Author

Listed:
  • Mohamed Chikhi

    (Université de Ouargla and Université Montpellier I, Lameta)

  • Anne Péguin-Feissolle

    (CNRS, Greqam)

  • Michel Terraza

    (Université Montpellier I, Lameta)

Abstract
This paper analyzes the cyclical behavior of Dow Jones by testing the existence of long memory through a new class of semiparametric ARFIMA models with HYGARCH errors (SEMIFARMA-HYGARCH); this class includes nonparametric deterministic trend, stochastic trend, short-range and long-range dependence and long memory heteroscedastic errors. We study the daily returns of the Dow Jones from 1896 to 2006. We estimate several models and we find that the coefficients of the SEMIFARMA-HYGARCH model, including long memory coefficients for the equations of the mean and the conditional variance, are highly significant. The forecasting results show that the informational shocks have permanent effects on volatility and the SEMIFARMA-HYGARCH model has better performance over some other models for long and/or short horizons. The predictions from this model are also better than the predictions of the random walk model; accordingly, the weak efficiency assumption of financial markets seems violated for Dow Jones returns studied over a long period.

Suggested Citation

  • Mohamed Chikhi & Anne Péguin-Feissolle & Michel Terraza, 2012. "SEMIFARMA-HYGARCH Modeling of Dow Jones Return Persistence," AMSE Working Papers 1214, Aix-Marseille School of Economics, France.
    • Handle: RePEc:aim:wpaimx:1214
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    References listed on IDEAS

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    2. Quynh-Trang Nguyen & John Francis Diaz & Jo-Hui Chen & Ming-Yen Lee, 2019. "Fractional Integration in Corporate Social Responsibility Indices: A FIGARCH and HYGARCH Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(7), pages 836-850, July.
    3. Boubaker, Heni & Sghaier, Nadia, 2015. "Semiparametric generalized long-memory modeling of some mena stock market returns: A wavelet approach," Economic Modelling, Elsevier, vol. 50(C), pages 254-265.

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    More about this item

    Keywords

    SEMIFARMA model; HYGARCH model; nonparametric deterministic trend; kernel methodology; long memory.;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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