Long-Memory Processes in High-Frequency Foreign Exchange and U.S. Equity Market

Barret Pengyuan Shao

Chapter 22 in Handbook of Applied Investment Research, 2020, pp 597-620 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Long-memory processes in the financial time series is an important research topic in derivative pricing and risk management. Most of the past empirical research about the long-memory processes have been conducted based on a lower frequency sampling, such as daily or monthly data. Very few works have been done with high-frequency financial data.In this study, we apply some widely used statistical tests (R/S, modified R/S, correlogram, and GPH tests) to investigate the existence of long-memory processes in the high-frequency Foreign Exchange (FX) and U.S. equity market returns and its realized volatility. In these financial markets, we find that the existence of long-memory processes in the high-frequency returns is insignificant; but the existence of long-memory processes is significant in the high-frequency realized volatility. For the realized volatility of U.S. equity market, we also report that the presence of long-memory processes is more significant with higher Hurst exponent when sampling at a higher frequency.

Keywords: Applied Investments; Financial Forecasting; Portfolio Theory; Investment Strategies; Fundamental and Economic Anomalies; Behaviour of Investors (search for similar items in EconPapers)
JEL-codes: G1 G11 G17 (search for similar items in EconPapers)
Date: 2020
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