Journal of Economic Literature (JEL) Code(s)
C12, C13, C58
This paper explores weak identification issues arising in commonly used models of
economic and financial time series. Two highly popular configurations are shown to
be asymptotically observationally equivalent: one with long memory and weak autoregressive dynamics, the other with antipersistent shocks and a near-unit autoregressive
root. We develop a data-driven semiparametric and identification-robust approach to
inference that reveals such ambiguities and documents the prevalence of weak identification in many realized volatility and trading volume series. The identification-robust empirical evidence generally favors long memory dynamics in volatility and volume, a conclusion that is corroborated using social-media news flow data.
Phillips, Peter C. B., "Weak Identification of Long Memory with Implications for Inference" (2022). Cowles Foundation Discussion Papers. 2694.