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Aggregation and memory of models of changing volatility

By Paolo Zaffaroni

Abstract

In this paper we study the effect of contemporaneous aggregation of an arbitrarily large number of processes featuring dynamic conditional heteroskedasticity with short memory when heterogeneity across units is allowed for. We look at the memory properties of the limit aggregate. General, necessary, conditions for long memory are derived. More specific results relative to certain stochastic volatility models are also developed, providing some examples of how long memory volatility can be obtained by aggregation

Topics: HB
Publisher: Warwick Business School, Financial Econometrics Research Centre
Year: 2001
OAI identifier: oai:wrap.warwick.ac.uk:1802

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