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Long-memories and mean breaks in realized volatilities

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  • Hyejin Song
  • Shin

Abstract

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'.

Suggested Citation

  • Hyejin Song & Shin, 2015. "Long-memories and mean breaks in realized volatilities," Applied Economics Letters, Taylor & Francis Journals, vol. 22(16), pages 1273-1280, November.
    • Handle: RePEc:taf:apeclt:v:22:y:2015:i:16:p:1273-1280
    DOI: 10.1080/13504851.2015.1013605
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    Cited by:

    1. Telli, Şahin & Chen, Hongzhuan, 2020. "Structural breaks and trend awareness-based interaction in crypto markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 558(C).
    2. Alejandra Macías Sánchez & Héctor Juan Villarreal Páez, 2018. "Sostenibilidad del gasto público: Cobertura y financiamiento de enfermedades crónicas en México. (Public Spending Sustainability: Coverage and Financing of Chronic Diseases in Mexico)," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 99-134, May.

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