Comparing of Volatility Transmission Model with Consideration of Long Memory Effect; Case Study: Three Selected Industry Index

Seyedhosseini, Seyed Mohammad; Ebrahimi, Seyed Babak

doi:10.22059/jfr.2013.35432

Comparing of Volatility Transmission Model with Consideration of Long Memory Effect; Case Study: Three Selected Industry Index

Document Type : Research Paper

Authors

¹ Prof., College of Industrial Engineering, Iran University of Science and Technology (IUST), Tehran, Iran

² Ph.D. Student in Industrial Engineering, Iran University of Science and Technology (IUST), Tehran, Iran

10.22059/jfr.2013.35432

Abstract

When the past observations are correlated with future observations and their correlation is significant, the time series has long memory. In this paper the contagion effect of volatilities, with consideration of long-run effect, is investigated. The basic model is BEKK (1, 1) and FBEKK (1,d,1), Model extended long-run memory parameter (d) is considered and estimated. Furthermore in this paper price index of three industries in Tehran Stock Exchange consisting Automobile and Accessories Industry index, Financial Intermediaries (Leasing) and Machinery and Equipment index is employed in empirical modeling. The results indicates that FBEKK (1, d, 1) is more precise and compatible with basic Theories in Economics.

Keywords