Forecasting the Nikkei spot index with fractional cointegration

Lien, Donald; Tse, Yiu Kuen

doi:10.1002/(sici)1099-131x(199907)18:4<259::aid-for723>3.0.co;2-7

Cited by 22 publications

(17 citation statements)

References 19 publications

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“…2. Lien and Tse (1999) investigate the forecast performance of the fractionally integrated error correction model against several competing models for the prediction of Nikkei stock average index. Their results reinforce the notion that co-integration and fractional cointegration are important for long-horizon forecasting.…”

Section: Long-term Co-memories and Short-run Adjustmentmentioning

confidence: 99%

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Long-Term Co-Memories and Short-Run Adjustment: Securitized Real Estate and Stock Markets

Liow

Yang

2005

J Real Estate Finan Econ

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This study considers whether securitized real estate and stock markets have long-term co-memories and implications for short-term adjustment. Our results offer reasonable support for fractional cointegration (characteristic of a long memory process) between securitized real estate price, stock market price and key macroeconomic factors in some economies. The implication is that where fractional cointegration prevails, securitized real estate and common stocks are substitutable assets over the long run and these assets may not be held together in a portfolio for diversification purpose. Furthermore, short-run analysis indicates that the speed of adjustment towards the long-run equilibrium is faster for fractional integrated vector error correction model (FIVECM) than VECM as the former incorporates a long history of past cointegration residuals. Additional comparisons of the two models’ forecasting accuracy show that incorporating fractional cointegration in a VECM model improves the forecasting performance over conventional VECM models. Our results reinforce the notion that cointegration, fractional cointegration and short-run adjustment dynamics are important in understanding market integration/segmentation. Copyright Springer Science + Business Media, Inc. 2005securitized real estate market, stock market, long-term co-memories, fractional cointegration, fractional integrated vector error correction model,

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Section: Long-term Co-memories and Short-run Adjustmentmentioning

confidence: 99%

“…Thus the FIVECM nests the VECM. Furthermore, Lien and Tse (1999) argue that as the FIVECM considers the long memory of the cointegrating relationship, it should provide better forecasts, especially over long forecast horizons, if fractional cointegration indeed exists.…”

Section: Introductionmentioning

confidence: 99%

Long-Term Co-Memories and Short-Run Adjustment: Securitized Real Estate and Stock Markets

Liow

Yang

2005

J Real Estate Finan Econ

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“…Typically {u t } t∈Z are assumed to be independent and identically distributed (iid) random variables. In the modeling of financial time series, conditional heteroscedasticity is often found, so there is a surge of interest in the modeling literature [see Baillie et al (1996), Hauser and Kunst (1998a,b), Lien and Tse (1999), Elek and Márkus (2004), Koopman et al (2007)] to extend (1) into the so-called FARIMA-GARCH model. Specifically, for a regular GARCH(r, s) model [cf.…”

Section: Introductionmentioning

confidence: 99%

Nonstationarity-Extended Whittle Estimation

Shao

2009

Econom. Theory

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For long memory time series models with uncorrelated but dependent errors, we establish the asymptotic normality of the Whittle estimator under mild conditions. Our framework includes the widely used FARIMA models with GARCH-type innovations. To cover nonstationary fractionally integrated processes, we extend the idea of Abadir, Distaso and Giraitis (2007, Journal of Econometrics 141, 1353-1384) and develop the nonstationarity-extended Whittle estimation. The resulting estimator is shown to be asymptotically normal and is more efficient than the tapered Whittle estimator. Finally, the results from a small simulation study are presented to corroborate our theoretical findings.

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“…Crato and Ray also examine the persistence of volatility, but for noisy squared returns. Lien and Tse (1999) and Booth and Tse (1995) examine fractional co-integration between the spot and futures prices. only a few studies examine the characteristics of futures market volatility measures.…”

Section: Introductionmentioning

confidence: 99%

Persistence of volatility in futures markets

2006

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This article examines the characteristics of key measures of volatility for different types of futures contracts to provide a better foundation for modeling volatility behavior and derivative values. Particular attention is focused on analyzing how different measures of volatility affect volatility persistence relationships. Intraday realized measures of volatility are found to be more persistent than daily measures, the type of GARCH procedure used for conditional volatility analysis is critical, and realized volatility persistence is not coherent with conditional volatility persistence. Specifically, although there is a good fit between the realized and conditional volatilities, no coherence exists between their degrees of persistence, a counterintuitive finding that shows realized and conditional volatility measures are not a substitute for one another.

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Forecasting the Nikkei spot index with fractional cointegration

Cited by 22 publications

References 19 publications

Long-Term Co-Memories and Short-Run Adjustment: Securitized Real Estate and Stock Markets

Long-Term Co-Memories and Short-Run Adjustment: Securitized Real Estate and Stock Markets

Nonstationarity-Extended Whittle Estimation

Persistence of volatility in futures markets

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