Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/26375 
Year of Publication: 
2008
Series/Report no.: 
CESifo Working Paper No. 2330
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper proposes a very general time series framework to capture the long-run behaviour of financial series. The suggested model includes linear and non-linear time trends, and stationary and nonstationary processes based on integer and/or fractional degrees of differentiation. Moreover, the spectrum is allowed to contain more than a single pole or singularity, occurring at zero and non-zero (cyclical) frequencies. This model is used to analyse four annual time series with a long span, namely dividends, earnings, interest rates and long-term government bond yields. The results indicate that the four series exhibit fractional integration with one or two poles in the spectrum. A forecasting comparison shows that a model with a non-linear trend along with fractional integration outperforms alternative models over long horizons.
Subjects: 
Fractional integration
financial time series data
trends
cycles
JEL: 
C22
G1
Document Type: 
Working Paper
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