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Volatility of Stock Market and Exchange Rate Returns in Peru: Long Memory or Short Memory with Level Shifts?

Andres Herrera and Gabriel Rodríguez
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Andres Herrera: Departamento de Economía - Pontificia Universidad Católica del Perú

No 2014-393, Documentos de Trabajo / Working Papers from Departamento de Economía - Pontificia Universidad Católica del Perú

Abstract: Though the econometrics literature on this area is extensive, in Peru few studies have been dedicated to the analysis of Önancial returns in general and volatility in particular. As part of an empirical research agenda suggested by Humala and RodrÌguez (2013), this paper represents one of the Örst attempts to distinguish between long- and short-memory (with level shifts) in volatility of Peruís stock market and exchange rate returns. We utilize the statistical approach put forward by Perron and Qu (2010). The data is end-of-day and span the period January 3, 1990 to June 13, 2013 (5,831 observations) for the stock market returns, and January, 3 1997 until June 24, 2013 (4,110 observations) for exchange rate returns. The analysis of the ACF, the periodogram and the fractional parameter estimation for the two volatilities suggest that the theoretical predictions of Perron and Quís simple mixture model (2010) are correct. The results are more conclusive for stock market volatility in comparison with those of the exchange rate. The application of one of the statistics employed by Perron and Qu (2010) suggest the rejection of a long-memory hypothesis for both volatilities. Nonetheless, the other statistics provide weak evidence against the null hypothesis, above all for the exchange rate market. To reinforce the Öndings, some results associated with other investigations are presented. JEL Classification-JEL: C22

Keywords: Structural Change; Jumps; Long Memory Processes; Fractional Integration; Frequency Domain Estimates; Random Level Shifts; Stock Market and Forex Rate Volatilities in Peru. (search for similar items in EconPapers)
Pages: 24 pages
Date: 2014
New Economics Papers: this item is included in nep-fmk
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Journal Article: Volatility of stock market and exchange rate returns in Peru: Long memory or short memory with level shifts? (2016) Downloads
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