Template-type: ReDif-Paper 1.0
Author-Name: Chevillon, G.
Author-Name: Hecq, A.W.
Author-workplace-name: Quantitative Economics
Author-Name: Laurent, S.F.J.A.
Author-workplace-name: Externe publicaties SBE
Title: Long memory through marginalization of large systems and hidden cross-section dependence
Abstract: This paper shows that large dimensional vector autoregressive (VAR) models of finite order can generate long memory in the marginalized univariate series. We derive high-level assumptions under which the final equation representation of a VAR(1) leads to univariate fractional white noises and verify the validity of these assumptions for two specific models. We consider the implications of our findings for the variances of asset returns where the so-called golden-rule of realized variances states that they tend always to exhibit fractional integration of a degree close to 0:4.
Series: GSBE Research Memoranda
Creation-Date: 20150101
Number: 014
File-URL: https://cris.maastrichtuniversity.nl/ws/files/1722025/guid-4f11d2b3-322e-40fb-8723-0c29d8bf3f6e-ASSET1.0.pdf
File-Format: application/pdf
File-Size: 720936
Handle: Repec:unm:umagsb:2015014
DOI: 10.26481/umagsb.2015014