Modelling Foreign Exchange Realized Volatility Using High Frequency Data: Long Memory Versus Structural Breaks

Posted: 9 Jan 2018 Last revised: 22 Feb 2018

See all articles by Abderazak Ben Maatoug

Abderazak Ben Maatoug

University of Bisha

Rim Lamouchi

GEF-2A LAb, Institut Supérieur de Gestion de Tunis, University of Tunis

Russell Davidson

McGill University; AMSE-GREQAM

Ibrahim Fatnassi

Tunis Business School, University of Tunis ; GEF-2A LAb, Institut Supérieur de Gestion de Tunis, University of Tunis

Date Written: January 9, 2018

Abstract

In this study, we model realized volatility constructed from intraday high-frequency data. We explore the possibility of confusing long memory and structural breaks in the realized volatility of the following spot exchange rates: EUR/USD, EUR/JPY, EUR/CHF, EUR/GBP, and EUR/AUD. The results show evidence for the presence of long memory in the exchange rates’ realized volatility. From the Bai – Perron test, we found structural breakpoints that match significant events in financial markets. Furthermore, the findings provide strong evidence in favour of the presence of long memory.

Keywords: Foreign Exchange Markets, Realized Volatility, High-Frequency Data, Long Memory, Structural Change

JEL Classification: C22, C32, C58, F31, G15

Suggested Citation

Maatoug, Abderazak Ben and Lamouchi, Rim and Davidson, Russell and Fatnassi, Ibrahim, Modelling Foreign Exchange Realized Volatility Using High Frequency Data: Long Memory Versus Structural Breaks (January 9, 2018). Available at SSRN: https://ssrn.com/abstract=3099148

Abderazak Ben Maatoug

University of Bisha ( email )

Bisha -KSU
Alriadh Street
Bisha
Saudi Arabia

Rim Lamouchi

GEF-2A LAb, Institut Supérieur de Gestion de Tunis, University of Tunis ( email )

41 Rue de la Liberte, Cite Bouchoucha
Bardo, Tunis 2000
Tunisia

Russell Davidson

McGill University ( email )

855 Sherbrooke Street West
Department of Economics
Montreal, Quebec H3A 2T7 H3A 2T7
Canada
514-398-4400 x 09008 (Phone)

AMSE-GREQAM ( email )

GREQAM
Centre de la Vieille Charité
Marseille, 13002
France
+33 491140740 (Phone)

Ibrahim Fatnassi (Contact Author)

Tunis Business School, University of Tunis ( email )

El Mourouj 2074
Kassaa, 2059
Tunisia

GEF-2A LAb, Institut Supérieur de Gestion de Tunis, University of Tunis ( email )

41, Avenue de Liberté, Cité Bouchoucha, Le Bardo
Bardo, Tunis 2000
Tunisia

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