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A long-memory analysis for the CBOE Brazil ETF volatility index

Author

Listed:
  • Edson Zambon Monte

Abstract

Purpose - The main goal of this paper is to investigate whether there is long-memory behavior in the CBOE Brazil ETF volatility index (named here VIXBR). As structural breaks may create a spurious long-range dependence, the presence of structural breaks is also gauged. Design/methodology/approach - The study considers the period from October 2011 to March 2021, using daily data. To test the long-memory behavior, three empirical approaches are adopted: GPH, ELW and robust GPH (RGPH) estimator. To estimate the structural break points adopted to date the subsamples, the ICSS algorithm is used. Findings - Results considering the total period (TP) and subsamples show that the breaks did not create a spurious long-memory behavior and together with the rolling estimation, reveal strong evidence of the long-range dependence in the CBOE Brazil ETF volatility index. The higher degree of persistent of the VIXBR series suggests an extended period of increased uncertainty that agents need consider when making their investment decision. Research limitations/implications - As possible extension of this study is to investigate the behavior of long memory and structural breaks for different frequencies (weekly, monthly, among others). Practical implications - The presence of long-range dependence in the CBOE Brazil ETF volatility index reveals that the past information is important for the predictability of risks, and therefore, can help to protect against market risks, which has important implications regarding the future decisions of economic agents (for example, policy makers and investors). Originality/value - Brazil is an emerging capital market (ECM) that has attracted a great deal of attention from investors and investment funds seeking to diversify its assets. This paper contributes to the empirical financial literature, by studying the long-memory behavior of the CBOE Brazil ETF volatility index, considering possible structural breaks. To the best of knowledge, this has not been done so far.

Suggested Citation

  • Edson Zambon Monte, 2022. "A long-memory analysis for the CBOE Brazil ETF volatility index," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 18(11), pages 5155-5171, February.
    • Handle: RePEc:eme:ijoemp:ijoem-03-2021-0352
    DOI: 10.1108/IJOEM-03-2021-0352
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    More about this item

    Keywords

    Volatility index; CBOE; Brazil; Long memory; C22; G10; G15;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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