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Is there long memory in financial time series?

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  • Luiz Renato Lima
  • Zhijie Xiao

Abstract

There has been a large amount of research on long memory in economic and financial time series. However, there is still no consensus on its presence in these series. We argue in this article that spurious short memory may be found because of the use of bandwidth parameters that diverge too quickly when the process exhibits long memory. We propose a new bandwidth parameter that is robust against the presence of long memory and revisit several economic and financial time series using the proposed bandwidth choice. Our results indicate the existence of spurious short memory in real exchange rates when traditional bandwidth parameters are employed, but short memory is rejected when the proposed bandwidth is used. We also find short memory in financial returns and long memory in their volatility.

Suggested Citation

  • Luiz Renato Lima & Zhijie Xiao, 2010. "Is there long memory in financial time series?," Applied Financial Economics, Taylor & Francis Journals, vol. 20(6), pages 487-500.
    • Handle: RePEc:taf:apfiec:v:20:y:2010:i:6:p:487-500
    DOI: 10.1080/09603100903459733
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    Cited by:

    1. Guglielmo Maria Caporale & Luis Gil-Alana, 2011. "The weekly structure of US stock prices," Applied Financial Economics, Taylor & Francis Journals, vol. 21(23), pages 1757-1764.
    2. Fu, Zhonghao & Hong, Yongmiao, 2019. "A model-free consistent test for structural change in regression possibly with endogeneity," Journal of Econometrics, Elsevier, vol. 211(1), pages 206-242.
    3. Zhijie Xiao & Luiz Renato Lima, 2007. "Testing Covariance Stationarity," Econometric Reviews, Taylor & Francis Journals, vol. 26(6), pages 643-667.
    4. Abakah, Emmanuel Joel Aikins & Gil-Alana, Luis Alberiko & Madigu, Godfrey & Romero-Rojo, Fatima, 2020. "Volatility persistence in cryptocurrency markets under structural breaks," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 680-691.
    5. Krishnankutty, Raveesh & Tiwari, Aviral Kumar, 2011. "Are the Bombay stock Exchange Sectoral indices of Indian stock market cointegrated? Evidence using fractional cointegration test," MPRA Paper 48590, University Library of Munich, Germany, revised 20 Dec 2011.
    6. Aikins Abakah, Emmanuel Joel & Gil-Alana, Luis A. & Arthur, Emmanuel Kwesi & Tiwari, Aviral Kumar, 2022. "Measuring volatility persistence in leveraged loan markets in the presence of structural breaks," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 141-152.
    7. John Elder & Sriram Villupuram, 2012. "Persistence in the return and volatility of home price indices," Applied Financial Economics, Taylor & Francis Journals, vol. 22(22), pages 1855-1868, November.
    8. Sun, Jingwei & Shi, Wendong, 2014. "Aggregation of the generalized fractional processes," Economics Letters, Elsevier, vol. 124(2), pages 258-262.

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