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Testing for time-varying long-range dependence in volatility for emerging markets

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  • Cajueiro, Daniel O.
  • Tabak, Benjamin M.

Abstract

This paper tests whether volatility for equity returns for emerging markets possesses long-range dependence. Furthermore, the assertion of whether long-range dependence is time-varying is checked through a rolling sample approach. The empirical results suggest that there exists long-range dependence in emerging equity returns' volatility and also that it is time-varying. This assertion also holds true for Japan and the US, which are considered more developed markets. Moreover, these results are robust to “shuffling” the data to eliminate short-term autocorrelation. Therefore, they suggest that the class of GARCH processes, which are currently employed to analyze volatility of financial time series, is misspecified.

Suggested Citation

  • Cajueiro, Daniel O. & Tabak, Benjamin M., 2005. "Testing for time-varying long-range dependence in volatility for emerging markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(3), pages 577-588.
    • Handle: RePEc:eee:phsmap:v:346:y:2005:i:3:p:577-588
    DOI: 10.1016/j.physa.2004.08.030
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