Long Memory in Rates and Volatilities of LIBOR: Wavelet Analysis

Francis In and Sangbae Kim
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Francis In: Monash University, Australia
Sangbae Kim: Kyungpook National University, Korea

Chapter 4 in An Introduction to Wavelet Theory in Finance:A Wavelet Multiscale Approach, 2012, pp 75-85 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis chapter examines the long-memory behavior of the LIBOR rates and volatilities using wavelet analysis. The major innovation of this chapter is to introduce the wavelet OLS estimation approach (Jensen, 1999a) using London Interbank Offer Rate (LIBOR) data for four major currencies, namely, the US dollar, the UK pound, the Japanese yen, and the Australian dollar. Our empirical findings show that the Japanese yen and Australian dollar LIBOR rates do not show any significant long-memory pattern, while the US dollar and UK pound do show some degree of significant long-memory pattern regardless of the maturity. In contrast, for all currencies, we find that the volatility has a clear pattern of long memory regardless of maturity and currencies, except for 6-month LIBOR rates for the Japanese yen and Australian dollar.

Keywords: Wavelets; Finance; Economics; Wavelet Analysis; Multiscaling Method (search for similar items in EconPapers)
Date: 2012
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