Abstract

http://ssrn.com/abstract=822066
 
 

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Structural Change and Long Range Dependence in Volatility of Exchange Rates: Either, Neither or Both?


Claudio Morana


Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Quantitative Methods and Business Strategies (DEMS); Center for Economic Research on Pensions and Welfare Policies (CeRP)

Andrea Beltratti


Bocconi University - Department of Finance


Journal of Empirical Finance, Vol. 11, pp. 629-58, 2004

Abstract:     
In this paper we test for the existence of long memory and structural breaks in the realized variance process for the DM/US$ and Yen/US$ exchange rates. While long memory is evident in the actual processes, a structural break analysis reveals that this feature is partially explained by unaccounted changes in regime. We then compare the forecasting performance of Markov switching models with that of an ARFIMA model. The results indicate that neglecting the break process is not important for very short term forecasting, once it is allowed for a long memory component in the model, but that superior forecasts can be obtained at longer horizons by modelling both long memory and structural change.

Keywords: Long memory, structural change, forecasting

JEL Classification: C14, C22, C53, G10

Accepted Paper Series


Not Available For Download

Date posted: October 22, 2005  

Suggested Citation

Morana, Claudio and Beltratti , Andrea, Structural Change and Long Range Dependence in Volatility of Exchange Rates: Either, Neither or Both?. Journal of Empirical Finance, Vol. 11, pp. 629-58, 2004. Available at SSRN: http://ssrn.com/abstract=822066

Contact Information

Claudio Morana (Contact Author)
Università di Milano Bicocca ( email )
Dip Economia Metodi Quantitativi Strategie Impresa
Piazza dell'Ateneno Nuovo 1
Milano, 20126
Italy
+39 0264483091 (Phone)
University of Milan, Bicocca - Department of Economics, Quantitative Methods and Business Strategies (DEMS) ( email )
Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )
Moncalieri, Turin
Italy
Andrea Beltratti
Bocconi University - Department of Finance ( email )
Via Roentgen 1
Milano, MI 20136
Italy
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