Long Memory and Multifractality: A Joint Test
Physica A: Statistical Mechanics and Its Applications, Forthcoming
17 Pages Posted: 8 Jan 2016
Date Written: July 3, 2015
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: Suggested Citation