To be or not to be: Roughness or long memory in volatility?
Abstract
We develop a framework for composite likelihood estimation of parametric continuous-time stationary Gaussian processes. We derive the asymptotic theory of the associated maximum composite likelihood estimator. We implement our approach on a pair of models that have been proposed to describe the random log-spot variance of financial asset returns. A simulation study shows that it delivers good performance in these settings and improves upon a method-of-moments estimation. In an empirical investigation, we inspect the dynamic of an intraday measure of the spot log-realized variance computed with high-frequency data from the cryptocurrency market. The evidence supports a mechanism, where the short- and long-term correlation structure of stochastic volatility are decoupled in order to capture its properties at different time scales. This is further backed by an analysis of the associated spot log-trading volume.
Fields of Study & Subjects
Financial Risk and Volatility Modeling
Complex Systems and Time Series Analysis
Stochastic processes and financial applications
Publication details
- Journal / source
- Journal of Econometrics
- Publisher
- Elsevier BV
- Volume
- 254
- Pages
- 106193–106193
- Publication date
- 9 February 2026
- Language
- EN