Not Available for Download

Structural Change and Long Range Dependence in Volatility of Exchange Rates: Either, Neither or Both?

Posted: 22 Oct 2005  

Claudio Morana

Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Quantitative Methods and Business Strategies (DEMS); Center for Economic Research on Pensions and Welfare Policies (CeRP); University of Bologna - Rimini Center for Economic Analysis (RCEA)

Andrea Beltratti

Bocconi University - Department of Finance

Abstract

In this paper we test for the existence of long memory and structural breaks in the realized variance process for the DM/US$ and Yen/US$ exchange rates. While long memory is evident in the actual processes, a structural break analysis reveals that this feature is partially explained by unaccounted changes in regime. We then compare the forecasting performance of Markov switching models with that of an ARFIMA model. The results indicate that neglecting the break process is not important for very short term forecasting, once it is allowed for a long memory component in the model, but that superior forecasts can be obtained at longer horizons by modelling both long memory and structural change.

Keywords: Long memory, structural change, forecasting

JEL Classification: C14, C22, C53, G10

Suggested Citation

Morana, Claudio and Beltratti , Andrea, Structural Change and Long Range Dependence in Volatility of Exchange Rates: Either, Neither or Both?. Journal of Empirical Finance, Vol. 11, pp. 629-58, 2004. Available at SSRN: https://ssrn.com/abstract=822066

Claudio Morana (Contact Author)

Università di Milano Bicocca ( email )

Dip Economia Metodi Quantitativi Strategie Impresa
Piazza dell'Ateneno Nuovo 1
Milano, 20126
Italy
+39 0264483091 (Phone)

Università degli Studi di Milano-Bicocca - Department of Economics, Quantitative Methods and Business Strategies (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )

Moncalieri, Turin
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Andrea Beltratti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Paper statistics

Abstract Views
597