We give the theoretical basis of a possible explanation for two stylized facts observed in long log-return series: the long-range dependence (LRD) in volatility and the integrated GARCH (IGARCH). Both these effects can be explained theoretically if one assumes that the data are nonstationary. ©...

The paper outlines a methodology for analyzing daily stock returns that relinquishes the assumption of global stationarity. Giving up this common working hypothesis reflects our belief that fundamental features of the financial markets are continuously and significantly changing. Our approach...