High Frequency Deutsche Mark-US Dollar Returns: FIGARCH Representations and Non Linearities
21 Pages Posted: 8 Jul 2015
Date Written: July 7, 2015
This article considers the use of the long memory volatility process, FIGARCH, in representing Deutschemark-US dollar spot exchange rate returns for both high and low frequency returns data. The FIGARCH model is found to be the preferred specification for both high frequency and daily returns data, with similar values of the long memory volatility parameter across frequencies, which is indicative of returns being generated by a self similar process. The BDS test for non-linearity is applied to the residuals of the model for the high frequency returns. No evidence is found to suggest that the procedure for filtering the high frequency returns to remove the intraday periodicity has induced any non-linearities in the residuals; and the FIGARCH specification is found to be adequate.
Keywords: BDS test, correlation dimension, FIGARCH, high frequency data, intra day periodicity, volatility
JEL Classification: C22, F31
Suggested Citation: Suggested Citation