Long memory in return volatility

Abstract

This article reports, confirming evidence for long memory in the return volatility from equity, and foreign exchange markets with the newly proposed increment ratio statistic by Surgailis et al. (2007). The test is robust to changing means, slowly varying trends and other nonstationarities. In contrast to the widely held belief, we also find that the absolute returns have the most memory for all the markets examined here and that the so-called Taylor effect holds for the foreign exchange rate markets as well.

Acknowledgement

This work was supported by Research Program 2008 of Kookmin University in Korea.

Notes

¹ Wright (2002) shows that some long-memory parameter estimators are biased downward for |r_t |².