Robust Wavelet-Domain Estimation of the Fractional Difference Parameter in Heavy-Tailed Time Series: An Empirical Study

Abstract

We investigate the performance of several wavelet-based estimators of the fractional difference parameter. We consider situations where, in addition to long-range dependence, the time series exhibit heavy tails and are perturbed by polynomial and change-point trends. We make detailed study of a wavelet-domain pseudo Maximum Likelihood Estimator (MLE), for which we provide an asymptotic and finite-sample justification. Using numerical experiments, we show that unlike the traditional time-domain estimators, estimators based on the wavelet transform are robust to additive trends and change points in mean, and produce accurate estimates even under significant departures from normality. The Wavelet-domain MLE appears to dominate a regression-based wavelet estimator in terms of smaller root mean squared error. These findings are derived from a simulation study and application to computer traffic traces.