Gaussian semiparametric estimation in long memory in stochastic volatility and signal plus noise models

Abstract

This paper considers the persistence found in the volatility of many financial time series by means of a local Long Memory in Stochastic Volatility model and analyzes the performance of the Gaussian semiparametric or local Whittle estimator of the memory parameter in a long memory signal plus noise model which includes the Long Memory in Stochastic Volatility as a particular case. It is proved that this estimate preserves the consistency and asymptotic normality encountered in observable long memory series and under milder conditions it is more efficient than the estimator based on a log-periodogram regression. Although the asymptotic properties do not depend on the signal-to-noise ratio the finite sample performance relies upon this magnitude and an appropriate choice of the bandwidth is important to minimize the influence of the added noise. I analyze the effect of the bandwidth via Monte Carlo. An application to a Spanish stock index is finally included.