Long Memory and Fractional Integration in High Frequency Data on the US Dollar/British Pound Spot Exchange Rate

33 Pages Posted: 14 May 2013

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2013

Abstract

This paper analyses the long-memory properties of a high-frequency financial time series dataset. It focuses on temporal aggregation and other features of the data, and how they might affect the degree of dependence of the series. Fractional integration or I(d) models are estimated with a variety of specifications for the error term. In brief, we find evidence that a lower degree of integration is associated with lower data frequencies. In particular, when the data are collected every 10 minutes there are several cases with values of d strictly smaller than 1, implying mean-reverting behaviour; however, for higher data frequencies the unit root null cannot be rejected. This holds for all four series examined, namely Open, High, Low and Last observations for the US dollar/British pound spot exchange rate and for different sample periods.

Keywords: High frequency data, long memory, volatility persistence, structural breaks

JEL Classification: C22, F31

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A., Long Memory and Fractional Integration in High Frequency Data on the US Dollar/British Pound Spot Exchange Rate (March 2013). DIW Berlin Discussion Paper No. 1294, Available at SSRN: https://ssrn.com/abstract=2264175 or http://dx.doi.org/10.2139/ssrn.2264175

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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German Institute for Economic Research (DIW Berlin) ( email )

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Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

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