Simulation Evidence on Long Memory and Regime Switching in the Second Moment for Modelling of Financial Returns
It is well-known that long memory and regime switching in the first moment of a stochastic process are easily confused. But the relation between long memory in the second moment and regime switching in the second moment is less well understood. We perform a simulation study in which we assess the possibility to distinguish the two properties in the case that data with long memory in the second mom