Real or spurious long memory characteristics of volatility: Empirical evidence from an emerging market |
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Institution: | 1. Département de mathématique, Université libre de Bruxelles, Belgium;2. Department of Statistics and Actuarial Science, University of Waterloo, Canada;1. Department of Sustainability Science and Department of Economics, Leuphana University of Lüneburg, 21335 Lüneburg, Germany;2. Department of International Economic Policy, University of Freiburg, 79085 Freiburg i. Br., Germany;1. Department of Economics, Korea University, Seoul, Republic of Korea;2. Department of Economics, Sungkyunkwan University, Seoul, Republic of Korea |
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Abstract: | We examine whether real or spurious long memory characteristics of volatility are present in stock market data. We empirically distinguish between true and spurious long memory characteristics by analysing different types and measurements of volatility, utilising different sampling frequencies and evaluating different financial markets. Because it is well known that long memory characteristics observed in data can be generated by either non-stationary structural breaks or slow regime-switching models, we additionally assess how the results of the analyses change during crisis periods by considering the effects of the US subprime mortgage crunch. The results support the presence of long memory characteristics that vary for diverse types and measurements of volatility, different financial markets, and distinct sampling periods, such as the pre-crisis and crisis periods. This result suggests that empirical investigations must be particularly careful in addressing long memory issues. |
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