Frequency domain principal components estimation of fractionally cointegrated processes: Some new results and an application to stock market volatility

Abstract: In this paper we present new results for the frequency domain principal components estimator of the cointegration space for stationary long memory processes of Morana [Appl. Econ. Lett. 11 (2004) 837], concerning asymptotic properties, identification of the cointegration space and the linkage with the frequency domain least-squares estimator. An application of the approach to stock market volatility data shows that the methodology can effectively be employed for the modelling of long-run relationships, which could not be handled using the standard – cointegration approach. [Copyright &y& Elsevier]