Maximum likelihood estimation of the fractional differencing parameter in an ARFIMA model using wavelets

Abstract

In this paper, we examine the finite-sample properties of the approximate maximum likelihood estimate (MLE) of the fractional differencing parameter d in an ARFIMA(p, d, q) model based on the wavelet coefficients. Ignoring wavelet coefficients of higher order of resolution, the remaining wavelet coefficients approximate a sample of independently and identically distributed normal variates with homogeneous variance within each level. The approximate MLE performs satisfactorily and provides a robust estimate for which the short memory component need not be specified.©2002 IMACS. Published by Elsevier Science B.V. All rights reserved.