Long memory versus structural breaks in modeling and forecasting realized volatility

Kyongwook Choi, Wei-Choun Yu () and Eric Zivot

Journal of International Money and Finance, 2010, vol. 29, issue 5, pages 857-875

Abstract: We explore the possibility of structural breaks in the daily realized volatility of the Deutschemark/Dollar, Yen/Dollar and Yen/Deutschemark spot exchange rates with observed long memory behavior. We find that structural breaks in the mean can partly explain the persistence of realized volatility. We propose a VAR-RV-Break model that provides superior predictive ability when the timing of future breaks is known. With unknown break dates and sizes, we find that a VAR-RV-I(d) long memory model provides a robust forecasting method even when the true financial volatility series are generated by structural breaks.

Keywords: Realized; volatility; Exchange; rate; Long; memory; Structural; break; Fractional; integration; Volatility; forecasting (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6V9S ... 6fb5035b5d0efbce9bc8
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Long Memory versus Structural Breaks in Modeling and Forecasting Realized Volatility (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:jimfin:v:29:y:2010:i:5:p:857-875

Access Statistics for this article

Journal of International Money and Finance is edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Series data maintained by Jeroen Loos ().