Nonstationarities in Financial Time Series, the Long-Range Dependence, and the IGARCH Effects

Abstract

We give the theoretical basis of a possible explanation for two stylized facts observed in long log-return series: the long-range dependence (LRD) in volatility and the integrated GARCH (IGARCH). Both these effects can be explained theoretically if one assumes that the data are nonstationary. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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