Long memory in commodity futures volatility: A wavelet perspective

John Elder and Hyun J. Jin

Journal of Futures Markets, 2007, vol. 27, issue 5, 411-437

Abstract: The authors reexamine the volatility of agricultural commodity futures for evidence of fractional integration, providing new empirical results and extending the extant literature in important dimensions. First, they utilize two relatively new estimators based on wavelets, which are generally superior to, for example, the popular estimator by J. Geweke and S. Porter‐Hudak (GPH; 1983) and exact maximum likelihood estimators (MLEs) on the basis of mean squared error (MSE). Second, they provide simulations to contrast their point estimates with those obtained by a fractionally integrated GARCH (generalized autoregressive conditional heteroscedasticity) model. Third, they conduct a wavelet coef.cient decomposition of futures volatility. They .nd that futures volatilities display the self‐similarity property consistent with long memory and that futures volatilities exhibit persistent long memory with .nite unconditional variance. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:411–437, 2007

Date: 2007
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