Faculty of Economics and Business Administration Publications Database

Persistence in the banking industry: Fractional integration and breaks in memory

Authors:
Rodrigues, Paulo M.M.
Rubia, Antonio
Source:
Volume: 29
Pages: 95 - 112
Month: December
ISSN-Print: 0927-5398
Link External Source: Online Version
Year: 2014
Keywords: Spurious long memory; Breaks in persistence; Lehman Brothers collapse; European sovereign debt
Abstract:

Certain “spurious long memory” processes mimic the behavior of fractional integration in that the variance of their sample mean behaves like that of a fractionally integrated process of some order DD. We show, however, experimentally that a fractional integration test may discriminate between spurious long memory of order DD and integration of order DD. Further, we suggest a test for the null hypothesis that the order of integration does not change from one subperiod to another. It simply builds on the difference of the estimates from the respective subsamples that are split exogenously. Upon appropriate normalization a limiting standard normal distribution arises. With these methods we tackle the question whether international and sectoral bank equity index returns are fractionally integrated and whether the memory parameters have changed. The daily data are split into three regimes: one pre-crises subsample, a second including the collapse of the Lehman Brothers bank, and a third covering the Euro area sovereign debt crisis. In particular, we provide evidence that both turmoils had differing international effects.

back