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An Investigation of Long Range Dependence in Intra-Day Foreign Exchange Rate Volatility

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  • Richard Payne
  • Marc Henry

Abstract

A comprehensive set of estimates of long memory in the volatility of three intra-day foreign exchange data series is presented. Robust semiparametric methods are used. Deseasonalizing procedures are proposed and permit the use of fully parametric methods which provide efficient tests of long memory. The hypothesis of long range dependence in the raw returns is rejected. In the volatility series, however, there is evidence of a long range dependent component, a finding which is significant and consistent across currencies. Furthermore, the hypothesis of I(1) volatility is strongly rejected in favour of a covariance stationary alternative, with evidence that previous findings of near-integrated volatility are due to the omission of long-range dependent components.

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File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp264.pdf
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Bibliographic Info

Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp264.

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Date of creation: Mar 1997
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Handle: RePEc:fmg:fmgdps:dp264

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Web page: http://www.lse.ac.uk/fmg/

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Cited by:
  1. Marc Henry & Peter M Robinson, 1998. "Long and Short Memory Conditional Heteroscedasticity in Estimating the Memory Parameter of Levels - (Now published in Econometric Theory, 15 (1999), pp.299-336.)," STICERD - Econometrics Paper Series /1998/357, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Cassola, Nuno & Morana, Claudio, 2003. "Volatility of interest rates in the euro area: evidence from high frequency data," Working Paper Series 0235, European Central Bank.
  3. Michael Melvin & Xixi Yin, . "Public Information Arrival, Exchange Rate Volatility, and Quote Frequency," Working Papers 96/1, Arizona State University, Department of Economics.
  4. Teyssière, Gilles, 1999. "Modelling exchange rates volatility with multivariate long-memory ARCH processes," SFB 373 Discussion Papers 1999,5, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  5. Luisa Bisaglia & Silvano Bordignon, 2002. "Mean square prediction error for long-memory processes," Statistical Papers, Springer, vol. 43(2), pages 161-175, April.
  6. Morana, Claudio & Beltratti, Andrea, 2004. "Structural change and long-range dependence in volatility of exchange rates: either, neither or both?," Journal of Empirical Finance, Elsevier, vol. 11(5), pages 629-658, December.
  7. Marc Henry & Peter M Robinson, 2002. "Higher-Order Kernel Semiparametric M-Estimation of Long Memory," STICERD - Econometrics Paper Series /2002/436, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.

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