Long Memory and Multifractality: A Joint Test

Physica A: Statistical Mechanics and Its Applications, Forthcoming

17 Pages Posted: 8 Jan 2016

See all articles by John Goddard

John Goddard

Bangor Business School

Enrico Onali

University of Exeter Business School

Date Written: July 3, 2015

Abstract

The properties of statistical tests for hypotheses concerning the parameters of the multifractal model of asset returns (MMAR) are investigated, using Monte Carlo techniques. We show that, in the presence of multifractality, conventional tests of long memory tend to over-reject the null hypothesis of no long memory. Our test addresses this issue by jointly estimating long memory and multifractality. The estimation and test procedures are applied to exchange rate data for 12 currencies. In 11 cases, the exchange rate returns are accurately described by compounding a NIID series with a multifractal time-deformation process. There is no evidence of long memory.

Keywords: Multifractality, long memory, volatility clustering, exchange rate returns

JEL Classification: F31, F47, C15

Suggested Citation

Goddard, John and Onali, Enrico, Long Memory and Multifractality: A Joint Test (July 3, 2015). Physica A: Statistical Mechanics and Its Applications, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2711969

John Goddard

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Enrico Onali (Contact Author)

University of Exeter Business School ( email )

Exeter
United Kingdom

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