Frequency domain minimum distance inference for possibly noninvertible and noncausal ARMA models

Abstract

SummaryWe propose a single step estimator for the autoregressive and moving average roots (without imposing causality or invertibility restrictions) of a nonstationary Fractional ARMA process. These estimators employ an efficient tapering procedure, which allows for a long memory component in the process, but avoids estimating the nonstationarity component, which can be stochastic and/or deterministic. After selecting automatically the order of the model, we robustly estimate the AR and MA roots for trading volume for the thirty stocks in the Dow Jones Industrial Average Index in the last decade. Two empirical results are found. First, there is strong evidence that stock market trading volume exhibits nonfundamentalness. Second, noncausality is more common than noninvertibility.