TY - JOUR
T1 - Long-memories and mean breaks in realized volatilities
AU - Song, Hyejin
AU - Shin, Dong Wan
N1 - Funding Information:
This work was supported by the National Research Foundation of Korea grant funded by the Korean government [2012-2046157].
Publisher Copyright:
© 2015 Taylor & Francis.
PY - 2015/11/2
Y1 - 2015/11/2
N2 - An extended sequential test of Bai and Perron (1998) to a long-memory process is applied to four sets of realized volatilities (RVs) of the US dollar–EU euro, the Japan yen–US dollar, the Korea won–US dollar exchange rates and the S&P 500 index to find significant structural breaks in the means. Even after the mean breaks are adjusted out, the RVs still have persistent memories, which will be shown to produce better out-of-sample forecasts of RVs if properly addressed than ignored. Contrary to the recent report of Choi et al. (2010) that ‘short-memory + break’ models have better forecast power than ‘long-memory only’ models in forecasting some foreign exchange rate RVs, models with ‘long-memory + mean breaks’ turn out to produce better out-of-sample forecasts than models with ‘short-memory + mean breaks’ and models with ‘long-memory only’.
AB - An extended sequential test of Bai and Perron (1998) to a long-memory process is applied to four sets of realized volatilities (RVs) of the US dollar–EU euro, the Japan yen–US dollar, the Korea won–US dollar exchange rates and the S&P 500 index to find significant structural breaks in the means. Even after the mean breaks are adjusted out, the RVs still have persistent memories, which will be shown to produce better out-of-sample forecasts of RVs if properly addressed than ignored. Contrary to the recent report of Choi et al. (2010) that ‘short-memory + break’ models have better forecast power than ‘long-memory only’ models in forecasting some foreign exchange rate RVs, models with ‘long-memory + mean breaks’ turn out to produce better out-of-sample forecasts than models with ‘short-memory + mean breaks’ and models with ‘long-memory only’.
KW - break
KW - foreign exchange rate
KW - high frequency data
KW - long-memory
KW - volatility forecasting
UR - http://www.scopus.com/inward/record.url?scp=84939466447&partnerID=8YFLogxK
U2 - 10.1080/13504851.2015.1013605
DO - 10.1080/13504851.2015.1013605
M3 - Article
AN - SCOPUS:84939466447
VL - 22
SP - 1273
EP - 1280
JO - Applied Economics Letters
JF - Applied Economics Letters
SN - 1350-4851
IS - 16
ER -