Long Memory and Data Frequency in Financial Markets

21 Pages Posted: 10 Mar 2017

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

Oleksiy Plastun

Sumy State University

Date Written: March 8, 2017

Abstract

This paper investigates persistence in financial time series at three different frequencies (daily, weekly and monthly). The analysis is carried out for various financial markets (stock markets, FOREX, commodity markets) over the period from 2000 to 2016 using two different long memory approaches (R/S analysis and fractional integration) for robustness purposes. The results indicate that persistence is higher at lower frequencies, for both returns and their volatility. This is true of the stock markets (both developed and emerging) and partially of the FOREX and commodity markets examined. Such evidence against the random walk behavior implies predictability and is inconsistent with the Efficient Market Hypothesis (EMH), since abnormal profits can be made using specific option trading strategies (butterfly, straddle, strangle, iron condor, etc.).

Keywords: Persistence, Long Memory, R/S Analysis, Fractional Integration

JEL Classification: C22, G12

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A. and Plastun, Oleksiy, Long Memory and Data Frequency in Financial Markets (March 8, 2017). DIW Berlin Discussion Paper No. 1647, Available at SSRN: https://ssrn.com/abstract=2929524 or http://dx.doi.org/10.2139/ssrn.2929524

Guglielmo Maria Caporale

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

Kingston Lane
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Uxbridge, Middlesex UB8 3PH
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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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

Mohrenstra├če 58
Berlin, 10117
Germany

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Oleksiy Plastun (Contact Author)

Sumy State University ( email )

Rymskyi-Korsakov str., 2
Sumy, 40000
Ukraine

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