6533b862fe1ef96bd12c651e
RESEARCH PRODUCT
The effect of round-off error on long memory processes
Fabrizio LilloGabriele La Spadasubject
Economics and EconometricsDiscretizationGaussianMathematics - Statistics TheoryStatistics Theory (math.ST)long memory processeFOS: Economics and businesssymbols.namesakeStatisticsFOS: MathematicsApplied mathematicsMathematicsHurst exponentStatistical Finance (q-fin.ST)Observational errorQuantitative Finance - Statistical FinanceEstimatordetrended fluctuation analysiround-off errorlong memory processesAutocovariancesymbolsDetrended fluctuation analysisRound-off errorSocial Sciences (miscellaneous)Analysismeasurement errorlocal Whittle estimatordescription
We study how the round-off (or discretization) error changes the statistical properties of a Gaussian long memory process. We show that the autocovariance and the spectral density of the discretized process are asymptotically rescaled by a factor smaller than one, and we compute exactly this scaling factor. Consequently, we find that the discretized process is also long memory with the same Hurst exponent as the original process. We consider the properties of two estimators of the Hurst exponent, namely the local Whittle (LW) estimator and the Detrended Fluctuation Analysis (DFA). By using analytical considerations and numerical simulations we show that, in presence of round-off error, both estimators are severely negatively biased in finite samples. Under regularity conditions we prove that the LW estimator applied to discretized processes is consistent and asymptotically normal. Moreover, we compute the asymptotic properties of the DFA for a generic (i.e. non Gaussian) long memory process and we apply the result to discretized processes.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2011-01-01 |