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Long-Memory Processes in High-Frequency Foreign Exchange and U.S. Equity Market

In: HANDBOOK OF APPLIED INVESTMENT RESEARCH

Author

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  • Barret Pengyuan Shao

Abstract

Long-memory processes in the financial time series is an important research topic in derivative pricing and risk management. Most of the past empirical research about the long-memory processes have been conducted based on a lower frequency sampling, such as daily or monthly data. Very few works have been done with high-frequency financial data.In this study, we apply some widely used statistical tests (R/S, modified R/S, correlogram, and GPH tests) to investigate the existence of long-memory processes in the high-frequency Foreign Exchange (FX) and U.S. equity market returns and its realized volatility. In these financial markets, we find that the existence of long-memory processes in the high-frequency returns is insignificant; but the existence of long-memory processes is significant in the high-frequency realized volatility. For the realized volatility of U.S. equity market, we also report that the presence of long-memory processes is more significant with higher Hurst exponent when sampling at a higher frequency.

Suggested Citation

  • Barret Pengyuan Shao, 2020. "Long-Memory Processes in High-Frequency Foreign Exchange and U.S. Equity Market," World Scientific Book Chapters, in: John B Guerard & William T Ziemba (ed.), HANDBOOK OF APPLIED INVESTMENT RESEARCH, chapter 22, pages 597-620, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811222634_0022
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    More about this item

    Keywords

    Applied Investments; Financial Forecasting; Portfolio Theory; Investment Strategies; Fundamental and Economic Anomalies; Behaviour of Investors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G1 - Financial Economics - - General Financial Markets

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