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Memory, Roughness, and Information Persistence in Financial Markets: A Structural Approach to Volatility Forecasting

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  • Akash Deep
  • Nicholas Appiah
  • Svetlozar T. Rachev

Abstract

This paper studies the joint role of long-memory dynamics,rough-volatility behavior, and persistence-based forecasting features in equity volatility modeling. We combine semiparametric long-memory estimation, rough-volatility diagnostics, and structured forecasting regressions to examine whether persistence measures contain economically meaningful forecasting information beyond conventional volatility predictors. Using a panel of 115 S&P500 constituents from November 2001 through April 2026, we document that volatility proxies exhibit substantial long-memory behavior and locally rough dynamics. The cross-sectional mean Geweke-Porter-Hudak estimate of the memory parameter is $\hat{d} = 0.226$, while the corresponding local-Whittle estimate is $\hat{d} = 0.440$, with statistical significance observed across nearly the entire panel. Rolling estimates of persistence rise substantially during the global financial crisis and the COVID period and display a positive contemporaneous association with the VIX. We then examine whether persistence-related features improve out-of-sample volatility forecasts beyond standard HAR and HAR-X benchmarks. Incorporating cross-sectional persistence aggregates, sectoral persistence measures, and persistence-by-stress interaction terms produces moderate but statistically significant forecasting improvements, particularly at longer horizons and during stress regimes. Forecast gains are strongest during periods of elevated market volatility and in volatility-managed portfolio applications. The results suggest that persistence measures may serve as useful reduced-form indicators of the duration and propagation of uncertainty in financial markets, although the paper does not claim structural identification of the economic mechanisms generating persistence.

Suggested Citation

  • Akash Deep & Nicholas Appiah & Svetlozar T. Rachev, 2026. "Memory, Roughness, and Information Persistence in Financial Markets: A Structural Approach to Volatility Forecasting," Papers 2605.24285, arXiv.org.
  • Handle: RePEc:arx:papers:2605.24285
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