%% This document created by Scientific Word (R) Version 2.5


\documentclass[12pt]{article}
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
\usepackage{sw20jart}

%TCIDATA{TCIstyle=Article/ART4.LAT,jart,sw20jart}

%TCIDATA{Created=Mon Sep 04 10:45:50 2000}
%TCIDATA{LastRevised=Tue Jan 07 13:34:14 2003}

\input{tcilatex}
\begin{document}

\title{EC821:\ Time Series Econometrics\\
Spring 2003\\
Notes Section 10 Part 3}
\author{Christopher F\ Baum \and Department of Economics \and Boston College \and %
baum@bc.edu}
\maketitle

\section{Annotated bibliography of papers studying long range dependence}

The following list includes only those papers which I have authored or
coauthored on the subject. Beyond the (somewhat dated) extensive
bibliography in Baillie (1996), a search of the EconLit database for ``long
memory'', ``fractional integration'', and ``ARFIMA'' will turn up many more
recently published papers using these methods in economics and finance. All
BC\ Economics Working Papers are accessible in Acrobat PDF format from the
department homepage or my personal homepage on the department's website.

\begin{itemize}
\item  Boston College Economics Working Paper (BC WP)\ 492. John Barkoulas
(University of Tennessee) and Christopher F\ Baum, ``Dynamics of intra--EMS\
interest rate linkages'' (rev. 02/2001)
\end{itemize}

Abstract: A number of previous studies have questioned the dominant role of
Germany within the EMS. These conclusions are often based on empirical
findings that interest rates of member countries of the EMS are not affected
by German interest rates, even in the long run. In this study we establish
evidence to the contrary by demonstrating that intra-EMS interest rate
differentials (vis-a-vis Germany) exhibit mean-reverting behavior
characterized by long-memory dynamics. Fractional error correction models'
estimates suggest the presence of short-run intra-EMS monetary-policy
interdependencies, but they validate the German Dominance Hypothesis in the
long run.

\begin{itemize}
\item  BC WP\ 472. Basma Bekdache (Wayne State University) and Christopher F
Baum, ''A re-evaluation of empirical tests of the Fisher hypothesis''
(09/2000)
\end{itemize}

Abstract: This paper shows that the recent literature that tests for a
long-run Fisher relationship using cointegration analysis is seriously
flawed. Cointegration analysis assumes that the variables in question are
I(1) or I(d) with the same d. Using monthly post-war U.S. data from
1959-1997, we show that this is not the case for nominal interest rates and
inflation. While we cannot reject the hypothesis that nominal interest rates
have a unit root, we find that inflation is a long-memory process. A direct
test for the equality of the fractional differencing parameter for both
series decisively rejects the hypothesis that the series share the same
order of integration.

\begin{itemize}
\item  BC WP\ 396. John T. Barkoulas (University of Tennessee), Christopher
F. Baum and Atreya Chakraborty (Charles River Associates), ''Waves and
Persistence in Merger and Acquisition Activity'' (rev. 12/1999; published, 
\emph{Economics Letters, }2001, 70, 237-243)
\end{itemize}

Abstract:\ Does merger and acquisition (M\&A) activity occur in waves, that
is, are there oscillations between low and high levels of M\&A activity? The
answer to this question is important in developing univariate as well as
structural models of explaining and forecasting the stochastic behavior of
M\&A activity. There is evidence to suggest that aggregate U.S. time-series
data on merger and acquisition (M\&A) activity exhibit a ''wave: behavior,
which has been modeled by fitting either a two-state Markov switching-regime
model or a sine-wave model to the data. This study provides an alternative
characterization of the temporal patterns in M\&A as a nonlinear process
with strongly persistent or long-memory dynamics. The apparent level changes
or partial cycles of differing magnitudes in aggregate M\&A time series are
consistent with an underlying data generating process exhibiting long
memory. Time- and frequency-domain estimation methods are applied to a long
M\&A time series constructed by Town (1992), covering approximately a
century of merger activity in the U.S. economy. We find significant evidence
of long-term cyclical behavior, nonperiodic in nature, in the M\&A time
series, even after accounting for potential shifts in the mean level of the
series. A shock to M\&A activity exhibits significant persistence as it is
damped at the very slow hyperbolic rate, but it eventually dissipates. We
provide both theoretical and empirical rationales for the presence of
fractional dynamics with long-memory features in M\&A activity.
Theoretically, long-term dependence may be due to persistent differences in
firm valuation between stockholders and nonstockholders following an
''economic disturbance,'' as suggested by Gort (1969). Empirically,
long-memory dynamics in M\&A activity may reflect the statistical properties
of fundamental factors underlying its behavior, as several of the proposed
determinants of M\&A activity have been shown to exhibit strong persistence.

\begin{itemize}
\item  BC WP\ 380. Christopher F. Baum, John T. Barkoulas, and Mustafa
Caglayan (University of Liverpool), ''Long memory or structural breaks: Can
either explain nonstationary real exchange rates under the current float?''
(rev. 01/99; published, \emph{Journal of International Financial Markets,
Institutions, and Money}, 1999, 9, 359-376)
\end{itemize}

Abstract: This paper considers two potential rationales for the apparent
absence of mean reversion in real exchange rates in the post-Bretton Woods
era. We allow for (i) fractional integration and (ii) a double mean shift in
the real exchange rate process. These methods, applied to CPI-based rates
for 17 countries and WPI-based rates for 12 countries, demonstrate that the
unit-root hypothesis is robust against both fractional alternatives and
structural breaks. This evidence suggests rejection of the doctrine of
absolute long-run purchasing power parity during the post-Bretton Woods era.

\begin{itemize}
\item  BC WP\ 377. John T. Barkoulas, Christopher F. Baum, Mustafa Caglayan
and Atreya Chakraborty, ''Persistent Dependence in Foreign Exchange Rates? A
Reexamination'' (rev. 04/2000; forthcoming 2002 in \emph{Global Financial
Markets:\ Issues and Policies})
\end{itemize}

Abstract: We test for stochastic long-memory behavior in the returns series
of currency rates for eighteen industrial countries using a semiparametric
fractional estimation method. A sensitivity analysis is also carried out to
analyze the temporal stability of the long-memory parameter. Contrary to the
findings of some previous studies alluding to the presence of long memory in
major currency rates, our evidence provides wide support to the martingale
model (and therefore for foreign exchange market efficiency) for our broader
sample of foreign currency rates. Any inference of long-range dependence is
fragile, especially for the major currency rates. However, long-memory
dynamics are found in a small number of secondary (nonmajor) currency rates.

\begin{itemize}
\item  BC\ WP\ 361. John Barkoulas and Christopher F. Baum, ''Long Memory
and Forecasting in Euroyen Deposit Rates'' (2/97; published in \emph{\
Financial Engineering and the Japanese Markets}, 1997, 4:189-201)
\end{itemize}

Abstract: We test for long memory in 3- and 6-month daily returns series on
Eurocurrency deposits denominated in Japanese yen (Euroyen). The fractional
differencing parameter is estimated using the spectral regression method.
The conflicting evidence obtained from the application of tests against a
unit root as well as tests against stationarity provides the motivation for
testing for fractional roots. Significant evidence of positive long-range
dependence is found in the Euroyen returns series. The estimated fractional
models result in dramatic out-of-sample forecasting improvements over longer
horizons compared to benchmark linear models, thus providing strong evidence
against the martingale model.

\begin{itemize}
\item  BC\ WP\ 356. John T. Barkoulas, Christopher F. Baum and Nickolaos
Travlos, ``Long Memory in the Greek Stock Market'' (12/96; published in 
\emph{Applied Financial Economics}, 2000, 10:2, 177-184)
\end{itemize}

Abstract:\ We test for stochastic long memory in the Greek stock market, an
emerging capital market. The fractional differencing parameter is estimated
using the spectral regression method. Contrary to findings for major capital
markets, significant and robust evidence of positive long-term persistence
is found in the Greek stock market. As compared to benchmark linear models,
the estimated fractional models provide improved out-of-sample forecasting
accuracy for the Greek stock returns series over longer forecasting horizons.

\begin{itemize}
\item  BC\ WP\ 349. John T. Barkoulas, Christopher F. Baum and Gurkan S.
Oguz (Tufts University), ``Stochastic Long Memory in Traded Goods Prices''
(10/96; published, \emph{Applied Economics Letters}, 1998, 5:135-138).
\end{itemize}

Abstract: Using spectral regression and exact maximum likelihood methods, we
test for long memory dynamics in the traded goods prices for the G7
countries, as measured in their import and export price indices. Significant
and robust evidence of fractional dynamics with long memory features is
found in both import and export price inflation rates.

\begin{itemize}
\item  BC\ WP\ 334. John Barkoulas and Christopher F. Baum, ``Fractional
Dynamics in Japanese Financial Time Series'' (rev. 7/97; published, \emph{%
Pacific-Basin Finance Journal}, 6:1-2, 115-124)
\end{itemize}

Abstract: Using the spectral regression and Gaussian semiparametric methods
of estimating the long-memory parameter, we test for fractional dynamic
behavior in a number of important Japanese financial time series: spot
exchange rates, forward exchange rates, stock prices, currency forward
premia, Euroyen deposit rates, and the Euroyen term premium. Stochastic long
memory is established as a feature of the currency forward premia, Euroyen
deposit rates, and Euroyen term premium series. The martingale model cannot
be rejected for the spot, forward, and stock price series.

\begin{itemize}
\item  BC\ WP\ 333. Christopher F. Baum, John Barkoulas and Mustafa
Caglayan, ``Persistence in International Inflation Rates'' (rev. 04/98;
published, \emph{Southern Economic Journal}, 65:4 (1999), 900-913)
\end{itemize}

Abstract: We test for fractional dynamics in CPI-based inflation rates for
twenty-seven countries and WPI-based inflation rates for twenty-two
countries. The fractional differencing parameter is estimated using
semiparametric and approximate maximum likelihood methods. Significant
evidence of fractional dynamics with long-memory features is found in both
CPI- and WPI-based inflation rates for industrial as well as developing
countries. Implications of the findings are considered and sources of long
memory are hypothesized.

\begin{itemize}
\item  BC\ WP\ 321. John Barkoulas, Christopher F. Baum, and Mustafa
Caglayan, ``Fractional Monetary Dynamics'' (revised 01/98; published, \emph{%
Applied Economics}, 1999, 31, 1393-1400.)
\end{itemize}

Abstract: We test for fractional dynamics in U.S. monetary series, their
various formulations and components, and velocity series. Using the spectral
regression method, we find evidence of a fractional exponent in the
differencing process of the monetary series (both simple-sum and Divisia
indices), in their components (with the exception of demand deposits,
savings deposits, overnight repurchase agreements, and term repurchase
agreements), and the monetary base and money multipliers. No evidence of
fractional behavior is found in the velocity series. Granger's (1980)
aggregation hypothesis is evaluated and implications of the presence of
fractional monetary dynamics are drawn.

\begin{itemize}
\item  BC\ WP\ 317. John Barkoulas, Christopher F. Baum, ``Fractional
Differencing Modeling and Forecasting of Eurocurrency Deposit Rates'' (rev.
10/96; published, \emph{Journal of Financial Research}, Fall 1997, 20:3,
355-372).
\end{itemize}

Abstract: We investigate the low frequency properties of three- and
six-month rates for Eurocurrency deposits denominated in eight major
currencies with specific emphasis on fractional dynamics. Using the
fractional integration testing procedure suggested by Geweke and
Porter-Hudak (1983), we find that several of the Eurocurrency deposit rates
are fractionally integrated processes with long memory. These findings have
important implications for econometric modeling, forecasting, and
cointegration testing of Eurocurrency rates.

\begin{itemize}
\item  BC\ WP\ 315. John Barkoulas, Christopher F. Baum and Gurkan S. Oguz,
``Fractional Cointegration Analysis of Long Term International Interest
Rates'' (rev. 10/96; published,\emph{\ International Journal of Finance},
1997, 9:2, 586-606).
\end{itemize}

Abstract: DeGennaro, Kunkel, and Lee (1994) studied the long run dynamics of
a system of long term interest rates of five industrialized countries by
means of sophisticated cointegration methods. They found little evidence in
support of the cointegration hypothesis, thus concluding that a separate set
of fundamentals drives the dynamics of each of the individual long term
interest rate series. In this study, we extend their analysis by exploring
the possibility of very slow mean reverting dynamics (fractional
cointegration) in the system of the five long term interest rates. We use
the GPH test as our testing methodology for fractional integration and
cointegration. Through rigorous investigation of the full system of the five
long term interest rate series and its various subsystems, we provide
evidence that the error correction term follows a fractionally integrated
process with long memory, that is, it is mean reverting, though not
covariance stationary. Despite significant persistence in the short run, a
shock to the system of long term interest rates eventually dissipates so
that an equilibrium relationship prevails in the long run.

\begin{itemize}
\item  BC\ WP\ 314. John Barkoulas and Christopher F. Baum, ``Long Term
Dependence in Stock Returns'' (4/96; published, \emph{Economics Letters},
1996, 53:3, 253-259.
\end{itemize}

Abstract: This paper investigates the presence of fractal dynamics in stock
returns. We improve upon existing literature in two ways: i) instead of
rescaled-range analysis, we use the more efficient semi-nonparametric
procedure suggested by Geweke and Porter-Hudak (GPH, 1983), and ii) to
ensure robustness, we apply the GPH test to a variety of aggregate and
sectoral stock indices and individual companies' stock returns series at
both daily and monthly frequencies. Our results indicate that fractal
structure is not exhibited by stock indices, but it may characterize the
behavior of some individual stock returns series.

\begin{thebibliography}{9}
\bibitem{baillie}  Baillie, R. 1996. Long Memory Processes and Fractional
Integration in Econometrics, \textsl{Journal of Econometrics}, 73, 5-59.
\end{thebibliography}

\end{document}
