COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1348

Penalised Maximum Likelihood Estimation for Fractional Gaussian Processes

Offer Lieberman
Technion-Israel Institute of Technology and Yale University

December 2001

We apply and extend Firth's (1993) modified score estimator to deal with a class of stationary Gaussian long-memory processes. Our estimator removes the first order bias of the maximum likelihood estimator. A small simulation study reveals the reduction in the bias is considerable, while it does not inflate the corresponding mean squared error.

Keywords: ARFIMA; Firth's formula; Fractional differencing; Approximate modification

JEL Classification: C10, C13