IDEAS home Printed from https://ideas.repec.org/a/wly/jmoncb/v39y2007i2-3p689-702.html
   My bibliography  Save this article

Evidence on the Extent and Potential Sources of Long Memory in U.S. Treasury Security Returns and Yields

Author

Listed:
  • ROBERT A. CONNOLLY
  • Z. NURAY GÜNER
  • KENNETH N. HIGHTOWER

Abstract

Unlike equity returns, many fixed‐income return measures appear to display long memory. We show that the extent of long memory differs strongly for gross and excess holding period returns on U.S. Treasury securities. Granger and others have argued that long memory may only reflect infrequent structural breaks. We explore the impact of structural instability on tests for long memory and find only weak indications that it lies behind the long memory in our return series. The evidence of long memory remains strong for yield and term premia series even after accounting for a series of potential underlying structural changes.

Suggested Citation

  • Robert A. Connolly & Z. Nuray Güner & Kenneth N. Hightower, 2007. "Evidence on the Extent and Potential Sources of Long Memory in U.S. Treasury Security Returns and Yields," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2‐3), pages 689-702, March.
    • Handle: RePEc:wly:jmoncb:v:39:y:2007:i:2-3:p:689-702
    DOI: 10.1111/j.0022-2879.2007.00041.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.0022-2879.2007.00041.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.0022-2879.2007.00041.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andersen T. G & Bollerslev T. & Diebold F. X & Labys P., 2001. "The Distribution of Realized Exchange Rate Volatility," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 42-55, March.
    2. Hassler, Uwe & Wolters, Jurgen, 1995. "Long Memory in Inflation Rates: International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 37-45, January.
    3. Backus, David K & Zin, Stanley E, 1993. "Long-Memory Inflation Uncertainty: Evidence from the Term Structure of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 681-700, August.
    4. Bollerslev, Tim & Ole Mikkelsen, Hans, 1996. "Modeling and pricing long memory in stock market volatility," Journal of Econometrics, Elsevier, vol. 73(1), pages 151-184, July.
    5. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    6. Lee, Dongin & Schmidt, Peter, 1996. "On the power of the KPSS test of stationarity against fractionally-integrated alternatives," Journal of Econometrics, Elsevier, vol. 73(1), pages 285-302, July.
    7. Ang, Andrew & Bekaert, Geert, 2002. "Short rate nonlinearities and regime switches," Journal of Economic Dynamics and Control, Elsevier, vol. 26(7-8), pages 1243-1274, July.
    8. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    9. Granger, Clive W. J. & Hyung, Namwon, 2004. "Occasional structural breaks and long memory with an application to the S&P 500 absolute stock returns," Journal of Empirical Finance, Elsevier, vol. 11(3), pages 399-421, June.
    10. Gray, Stephen F., 1996. "Modeling the conditional distribution of interest rates as a regime-switching process," Journal of Financial Economics, Elsevier, vol. 42(1), pages 27-62, September.
    11. Baillie, Richard T & Chung, Ching-Fan & Tieslau, Margie A, 1996. "Analysing Inflation by the Fractionally Integrated ARFIMA-GARCH Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(1), pages 23-40, Jan.-Feb..
    12. Smith, Aaron, 2005. "Level Shifts and the Illusion of Long Memory in Economic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 321-335, July.
    13. Christopher F. Baum & John T. Barkoulas & Mustafa Caglayan, 1999. "Persistence in International Inflation Rates," Southern Economic Journal, John Wiley & Sons, vol. 65(4), pages 900-913, April.
    14. Christopher F. Baum & John T. Barkoulas & Mustafa Caglayan, 1999. "Persistence in International Inflation Rates," Southern Economic Journal, John Wiley & Sons, vol. 65(4), pages 900-913, April.
    15. Banerjee, Anindya & Urga, Giovanni, 2005. "Modelling structural breaks, long memory and stock market volatility: an overview," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 1-34.
    16. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    17. Giraitis, Liudas & Kokoszka, Piotr & Leipus, Remigijus & Teyssiere, Gilles, 2003. "Rescaled variance and related tests for long memory in volatility and levels," Journal of Econometrics, Elsevier, vol. 112(2), pages 265-294, February.
    18. Liu, Ming, 2000. "Modeling long memory in stock market volatility," Journal of Econometrics, Elsevier, vol. 99(1), pages 139-171, November.
    19. Richard T. Baillie & Young Wook Han & Tae-Go Kwon, 2002. "Further Long Memory Properties of Inflationary Shocks," Southern Economic Journal, John Wiley & Sons, vol. 68(3), pages 496-510, January.
    20. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    21. Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-182, April.
    22. C. W. J. Granger & Roselyne Joyeux, 1980. "An Introduction To Long‐Memory Time Series Models And Fractional Differencing," Journal of Time Series Analysis, Wiley Blackwell, vol. 1(1), pages 15-29, January.
    23. William R. Parke, 1999. "What Is Fractional Integration?," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 632-638, November.
    24. GIRAITIS, Liudas & KOKOSZKA, Piotr & LEIPUS, Remigijus & TEYSSIÈRE, Gilles, 2003. "Rescaled variance and related tests for long memory in volatility and levels," LIDAM Reprints CORE 1594, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sanjay Rajagopal, 2012. "A Study of the Returns Behavior of Small Capitalization REITs," Journal of Economics and Behavioral Studies, AMH International, vol. 4(8), pages 457-466.
    2. Gil-Alana, Luis A. & Moreno, Antonio, 2012. "Uncovering the US term premium: An alternative route," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1181-1193.
    3. Till Strohsal & Enzo Weber, 2014. "Mean-variance cointegration and the expectations hypothesis," Quantitative Finance, Taylor & Francis Journals, vol. 14(11), pages 1983-1997, November.
    4. Charfeddine, Lanouar & Khediri, Karim Ben & Aye, Goodness C. & Gupta, Rangan, 2018. "Time-varying efficiency of developed and emerging bond markets: Evidence from long-spans of historical data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 632-647.
    5. Daniela Osterrieder & Peter C. Schotman, 2012. "The Volatility of Long-term Bond Returns: Persistent Interest Shocks and Time-varying Risk Premiums," CREATES Research Papers 2012-35, Department of Economics and Business Economics, Aarhus University.
    6. Jan Willem van den End, 2011. "Statistical evidence on the mean reversion of interest rates," DNB Working Papers 284, Netherlands Central Bank, Research Department.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Banerjee, Anindya & Urga, Giovanni, 2005. "Modelling structural breaks, long memory and stock market volatility: an overview," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 1-34.
    2. Kunal Saha & Vinodh Madhavan & Chandrashekhar G. R. & David McMillan, 2020. "Pitfalls in long memory research," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1733280-173, January.
    3. Javier Haulde & Morten Ørregaard Nielsen, 2022. "Fractional integration and cointegration," CREATES Research Papers 2022-02, Department of Economics and Business Economics, Aarhus University.
    4. Ngene, Geoffrey & Tah, Kenneth A. & Darrat, Ali F., 2017. "Long memory or structural breaks: Some evidence for African stock markets," Review of Financial Economics, Elsevier, vol. 34(C), pages 61-73.
    5. María Dolores Gadea & Laura Mayoral, 2006. "The Persistence of Inflation in OECD Countries: A Fractionally Integrated Approach," International Journal of Central Banking, International Journal of Central Banking, vol. 2(1), March.
    6. Geoffrey Ngene & Kenneth A. Tah & Ali F. Darrat, 2017. "Long memory or structural breaks: Some evidence for African stock markets," Review of Financial Economics, John Wiley & Sons, vol. 34(1), pages 61-73, September.
    7. Giorgio Canarella & Stephen M. Miller, 2016. "Inflation Persistence and Structural Breaks: The Experience of Inflation Targeting Countries and the US," Working papers 2016-11, University of Connecticut, Department of Economics.
    8. Assaf, Ata, 2015. "Long memory and level shifts in REITs returns and volatility," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 172-182.
    9. Carlos Barros & Luis Gil-Alana, 2013. "Inflation Forecasting in Angola: A Fractional Approach," African Development Review, African Development Bank, vol. 25(1), pages 91-104.
    10. Lu, Yang K. & Perron, Pierre, 2010. "Modeling and forecasting stock return volatility using a random level shift model," Journal of Empirical Finance, Elsevier, vol. 17(1), pages 138-156, January.
    11. Rinke, Saskia & Busch, Marie & Leschinski, Christian, 2017. "Long Memory, Breaks, and Trends: On the Sources of Persistence in Inflation Rates," Hannover Economic Papers (HEP) dp-584, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    12. C.S. Bos & S.J. Koopman & M. Ooms, 2007. "Long Memory Modelling of Inflation with Stochastic Variance and Structural Breaks," Tinbergen Institute Discussion Papers 07-099/4, Tinbergen Institute.
    13. Mateo Isoardi & Luis A. Gil-Alana, 2019. "Inflation in Argentina: Analysis of Persistence Using Fractional Integration," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(2), pages 204-223, April.
    14. Gadea, Maria Dolores & Sabate, Marcela & Serrano, Jose Maria, 2004. "Structural breaks and their trace in the memory: Inflation rate series in the long-run," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(2), pages 117-134, April.
    15. Al-Shboul, Mohammad & Alsharari, Nizar, 2019. "The dynamic behavior of evolving efficiency: Evidence from the UAE stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 73(C), pages 119-135.
    16. Charfeddine, Lanouar & Ajmi, Ahdi Noomen, 2013. "The Tunisian stock market index volatility: Long memory vs. switching regime," Emerging Markets Review, Elsevier, vol. 16(C), pages 170-182.
    17. Chaker Aloui & Duc Khuong Nguyen, 2014. "On the detection of extreme movements and persistent behaviour in Mediterranean stock markets: a wavelet-based approach," Applied Economics, Taylor & Francis Journals, vol. 46(22), pages 2611-2622, August.
    18. Grassi, Stefano & Santucci de Magistris, Paolo, 2014. "When long memory meets the Kalman filter: A comparative study," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 301-319.
    19. Guglielmo Caporale & Luis Gil-Alana, 2013. "Long memory in US real output per capita," Empirical Economics, Springer, vol. 44(2), pages 591-611, April.
    20. Mark J. Jensen, 2009. "The Long‐Run Fisher Effect: Can It Be Tested?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 221-231, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jmoncb:v:39:y:2007:i:2-3:p:689-702. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.