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Long-term memory in stock market volatility

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  • Mike So

Abstract

The modified rescaled range test proposed by Lo (1991) and the semiparametric test proposed by Geweke and Porker-Hudak (1983) are applied to detect the existence of long-term dependence in volatility for S & P 500 index, Dow Jones Industrial Average index and its constituent stocks. Three proxies of the variability of returns: the absolute mean deviation, the squared mean deviation and the logarithm of the absolute mean deviation are adopted in this study. Strong evidence of long-term dependence in volatility is found in nearly all cases. This suggests that it is important to incorporate the long memory feature in the modelling of volatility in order to produce good volatility forecasts and derivative pricing formulas.

Suggested Citation

  • Mike So, 2000. "Long-term memory in stock market volatility," Applied Financial Economics, Taylor & Francis Journals, vol. 10(5), pages 519-524.
    • Handle: RePEc:taf:apfiec:v:10:y:2000:i:5:p:519-524
    DOI: 10.1080/096031000416398
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    Cited by:

    1. So, Mike K.P. & Yu, Philip L.H., 2006. "Empirical analysis of GARCH models in value at risk estimation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 180-197, April.
    2. Härdle, Wolfgang Karl & Mungo, Julius, 2008. "Value-at-risk and expected shortfall when there is long range dependence," SFB 649 Discussion Papers 2008-006, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    3. So, Mike K.P. & Kwok, Susanna W.Y., 2006. "A multivariate long memory stochastic volatility model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 362(2), pages 450-464.
    4. Cochran, Steven J. & Mansur, Iqbal & Odusami, Babatunde, 2012. "Volatility persistence in metal returns: A FIGARCH approach," Journal of Economics and Business, Elsevier, vol. 64(4), pages 287-305.
    5. A. Assaf, 2007. "Fractional integration in the equity markets of MENA region," Applied Financial Economics, Taylor & Francis Journals, vol. 17(9), pages 709-723.
    6. repec:hum:wpaper:sfb649dp2008-006 is not listed on IDEAS

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