Modelling Foreign Exchange Realized Volatility Using High Frequency Data: Long Memory Versus Structural Breaks
Posted: 9 Jan 2018 Last revised: 22 Feb 2018
Date Written: January 9, 2018
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
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