Long term memory in extreme returns of financial time series

Lev Muchnik, Armin Bunde and Shlomo Havlin

Physica A: Statistical Mechanics and its Applications, 2009, vol. 388, issue 19, 4145-4150

Abstract: It is well known that while daily price returns of financial markets are uncorrelated, their absolute values (‘volatility’) are long-term correlated. Here we provide evidence that certain subsequences of the returns themselves also exhibit long-term memory. These subsequences consist of maxima (or minima) of returns in consecutive time windows of R days. Our analysis shows that for both stocks and currency exchange rates, long-term correlations are significant for R≥4. We argue that this long-term memory which is similar to that observed in volatility clustering sheds further insight on price dynamics that might be used for risk estimation.

Keywords: Extreme values; Long-term correlation; Long-term memory; Volatility; Econophysics (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:388:y:2009:i:19:p:4145-4150

DOI: 10.1016/j.physa.2009.05.046

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