Aggregation and memory of models of changing volatility

In this paper we study the effect of contemporaneous aggregation of an arbitrarily large number of covariance stationary processes featuring short memory dynamic conditional heteroskedasticity, when heterogeneity is allowed for across units. We look at the memory properties of the limit aggregate. General conditions for long memory heteroskedasticity are obtained. More specific results relative to certain stochastic volatility models are also developed, providing some examples of how long memory heteroskedasticity can be obtained by aggregation. (c) 2006 Elsevier B.V. All rights reserved