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Modelling Foreign Exchange Realized Volatility Using High Frequency Data: Long Memory versus Structural Breaks

Author

Listed:
  • Abderrazak Ben Maatoug

    (University of Bisha
    University of Tunis)

  • Rim Lamouchi

    (University of Tunis)

  • Russell Davidson

    (Centre de la Vielle Charité
    McGill University)

  • Ibrahim Fatnassi

    (University of Tunis)

Abstract

In this study, we model realized volatility constructed from intra-day high-frequency data. We explore the possibility of confusing long memory andstructural breaks in the realized volatility of the following spot exchange rates: EUR/USD, EUR/JPY, EUR/CHF, EUR/GBP, and EUR/AUD. The results show evidence for the presence of long memory in the exchange rates’ realized volatility. From the Bai–Perron test, we found structural breakpoints that match significant events in financial markets. Furthermore, the findings provide strong evidence in favour of the presence of long memory.

Suggested Citation

  • Abderrazak Ben Maatoug & Rim Lamouchi & Russell Davidson & Ibrahim Fatnassi, 2018. "Modelling Foreign Exchange Realized Volatility Using High Frequency Data: Long Memory versus Structural Breaks," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 10(1), pages 1-25, March.
  • Handle: RePEc:psc:journl:v:10:y:2018:i:1:p:1-25
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    More about this item

    Keywords

    foreign exchange markets; realized volatility; high-frequency data; long memory; structural change;
    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
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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