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Volatility of stock market and exchange rate returns in Peru: Long memory or short memory with level shifts?

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  • Andrés Herrera Aramburú
  • Gabriel Rodríguez

Abstract

This paper represents the first attempts to distinguish between long- and short-memory (with level shifts) in volatility of Peruvian stock and Forex rate returns. We utilise the approach of Perron and Qu (2010). The daily data span the period 3 January, 1990 to 13 June, 2013 for the stock market returns, and from 3 January, 1997 to 24 June, 2013 for the Forex rate returns. The analysis of the ACF, the periodogram and the fractional parameter estimates for both volatilities suggests that the theoretical predictions of the simple mixture model of Perron and Qu (2010) are correct. The results are more conclusive for the stock market volatility. The application of one statistic suggests rejection of the long-memory hypothesis for both volatilities. Other two statistics provide weak evidence against the null hypothesis, above all for the Forex rate market. To reinforce the findings, some results associated with other investigations are presented.

Suggested Citation

  • Andrés Herrera Aramburú & Gabriel Rodríguez, 2016. "Volatility of stock market and exchange rate returns in Peru: Long memory or short memory with level shifts?," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 9(1), pages 45-66.
    • Handle: RePEc:ids:ijmefi:v:9:y:2016:i:1:p:45-66
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    More about this item

    Keywords

    structural change; jumps; long memory processes; fractional integration; frequency domain estimates; RLS; random level shifts; stock markets; Forex rate volatility; Peru; stock market volatility; exchange rate returns; short memory processes.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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