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Long-Term Dependency Structure and Structural Breaks: Evidence from the U.S. Sector Returns and Volatility

Author

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  • Geoffrey Ngene

    (Stetson School of Business and Economics (SSBE), Mercer University, 1501 Mercer University Drive, Macon, GA 32107, USA)

  • Ann Nduati Mungai

    (School of Accounting, Florida Atlantic University, 777 Glades Road, KH 119, Boca Raton, FL 33431, USA)

  • Allen K. Lynch

    (Stetson School of Business and Economics (SSBE), Mercer University, 1501 Mercer University Drive, Macon, GA 32107, USA)

Abstract

The study investigates the impact of structural breaks on the long memory of daily returns and variance of 11 sectors. Using multiple sequential structural breaks tests, we uncover numerous and roughly shared structural breaks. Results from two non-parametric, three semi-parametric, and three parametric fractional differencing models using break-adjusted and break-unadjusted returns reveal incidence of short memory and anti-persistence in sector returns. Regarding variance, we find that the removal of breaks from the sector series dampens the fractional differencing parameter estimates. Therefore, the observed long memory in variance may be attributable to the occurrence of structural breaks in the sector series.

Suggested Citation

  • Geoffrey Ngene & Ann Nduati Mungai & Allen K. Lynch, 2018. "Long-Term Dependency Structure and Structural Breaks: Evidence from the U.S. Sector Returns and Volatility," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-38, June.
    • Handle: RePEc:wsi:rpbfmp:v:21:y:2018:i:02:n:s021909151850008x
    DOI: 10.1142/S021909151850008X
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