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Is there long memory in financial time series?

  • Luiz Renato Lima
  • Zhijie Xiao

There has been a large amount of research on long memory in economic and financial time series. However, there is still no consensus on its presence in these series. We argue in this article that spurious short memory may be found because of the use of bandwidth parameters that diverge too quickly when the process exhibits long memory. We propose a new bandwidth parameter that is robust against the presence of long memory and revisit several economic and financial time series using the proposed bandwidth choice. Our results indicate the existence of spurious short memory in real exchange rates when traditional bandwidth parameters are employed, but short memory is rejected when the proposed bandwidth is used. We also find short memory in financial returns and long memory in their volatility.

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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 20 (2010)
Issue (Month): 6 ()
Pages: 487-500

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Handle: RePEc:taf:apfiec:v:20:y:2010:i:6:p:487-500
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