Long-Term Dependency Structure and Structural Breaks: Evidence from the U.S. Sector Returns and Volatility

Geoffrey Ngene, Ann Nduati Mungai and Allen K. Lynch
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Geoffrey Ngene: Stetson School of Business and Economics (SSBE), Mercer University, 1501 Mercer University Drive, Macon, GA 32107, USA
Ann Nduati Mungai: School of Accounting, Florida Atlantic University, 777 Glades Road, KH 119, Boca Raton, FL 33431, USA
Allen K. Lynch: Stetson School of Business and Economics (SSBE), Mercer University, 1501 Mercer University Drive, Macon, GA 32107, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2018, vol. 21, issue 02, 1-38

Abstract: The study investigates the impact of structural breaks on the long memory of daily returns and variance of 11 sectors. Using multiple sequential structural breaks tests, we uncover numerous and roughly shared structural breaks. Results from two non-parametric, three semi-parametric, and three parametric fractional differencing models using break-adjusted and break-unadjusted returns reveal incidence of short memory and anti-persistence in sector returns. Regarding variance, we find that the removal of breaks from the sector series dampens the fractional differencing parameter estimates. Therefore, the observed long memory in variance may be attributable to the occurrence of structural breaks in the sector series.

Keywords: Long memory; structural break; fractional differencing; sectors (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S021909151850008X

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