Details
| Original language | English |
|---|---|
| Pages (from-to) | 977-991 |
| Number of pages | 15 |
| Journal | Statistical papers |
| Volume | 54 |
| Issue number | 4 |
| Early online date | 22 Mar 2013 |
| Publication status | Published - Nov 2013 |
Abstract
Long memory has been widely documented for realized financial market volatility. As a novelty, we consider daily realized asset correlations and we investigate whether the observed persistence is (i) due to true long memory (i.e. fractional integration) or (ii) artificially generated by some structural break processes. These two phenomena are difficult to be distinguished in practice. Our empirical results strongly indicate that the hyperbolic decay of the autocorrelation functions of pair-wise realized correlation series is indeed not driven by a truly fractionally integrated process. This finding is robust against user specific parameter choices in the applied test statistic and holds for all 15 considered time series. As a next step, we apply simple models with deterministic level shifts. When selecting the number of breaks, estimating the breakpoints and the corresponding structural break models we find a substantial degree of co-movement between the realized correlation series hinting at co-breaking. The estimated structural break models are interpreted in the light of the historic economic and financial development.
Keywords
- Fractional integration, Long memory, Realized correlation, Structural breaks
ASJC Scopus subject areas
- Mathematics(all)
- Statistics and Probability
- Decision Sciences(all)
- Statistics, Probability and Uncertainty
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In: Statistical papers, Vol. 54, No. 4, 11.2013, p. 977-991.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Fractional integration versus level shifts
T2 - the case of realized asset correlations
AU - Bertram, Philip
AU - Kruse, Robinson
AU - Sibbertsen, Philipp
N1 - Funding Information: Acknowledgments The authors thank two anonymous referees for carefully reading the paper. Robinson Kruse gratefully acknowledges financial support from CREATES funded by the Danish National Research Foundation. The financial support by the Deutsche Forschungsgemeinschaft (DFG) is gratefully acknowledged.
PY - 2013/11
Y1 - 2013/11
N2 - Long memory has been widely documented for realized financial market volatility. As a novelty, we consider daily realized asset correlations and we investigate whether the observed persistence is (i) due to true long memory (i.e. fractional integration) or (ii) artificially generated by some structural break processes. These two phenomena are difficult to be distinguished in practice. Our empirical results strongly indicate that the hyperbolic decay of the autocorrelation functions of pair-wise realized correlation series is indeed not driven by a truly fractionally integrated process. This finding is robust against user specific parameter choices in the applied test statistic and holds for all 15 considered time series. As a next step, we apply simple models with deterministic level shifts. When selecting the number of breaks, estimating the breakpoints and the corresponding structural break models we find a substantial degree of co-movement between the realized correlation series hinting at co-breaking. The estimated structural break models are interpreted in the light of the historic economic and financial development.
AB - Long memory has been widely documented for realized financial market volatility. As a novelty, we consider daily realized asset correlations and we investigate whether the observed persistence is (i) due to true long memory (i.e. fractional integration) or (ii) artificially generated by some structural break processes. These two phenomena are difficult to be distinguished in practice. Our empirical results strongly indicate that the hyperbolic decay of the autocorrelation functions of pair-wise realized correlation series is indeed not driven by a truly fractionally integrated process. This finding is robust against user specific parameter choices in the applied test statistic and holds for all 15 considered time series. As a next step, we apply simple models with deterministic level shifts. When selecting the number of breaks, estimating the breakpoints and the corresponding structural break models we find a substantial degree of co-movement between the realized correlation series hinting at co-breaking. The estimated structural break models are interpreted in the light of the historic economic and financial development.
KW - Fractional integration
KW - Long memory
KW - Realized correlation
KW - Structural breaks
UR - http://www.scopus.com/inward/record.url?scp=84885918372&partnerID=8YFLogxK
U2 - 10.1007/s00362-013-0513-2
DO - 10.1007/s00362-013-0513-2
M3 - Article
AN - SCOPUS:84885918372
VL - 54
SP - 977
EP - 991
JO - Statistical papers
JF - Statistical papers
SN - 0932-5026
IS - 4
ER -