Modelling Foreign Exchange Realized Volatility Using High Frequency Data: Long Memory versus Structural Breaks

Abderrazak Ben Maatoug (1, 2) , Rim Lamouchi (1) , Russell Davidson (3) , Ibrahim Fatnassi (1)

1 Université de Tunis
2 University of Bisha [Balgarn]
3 AMSE - Aix-Marseille Sciences Economiques

In this study, we model realized volatility constructed from intra-day highfrequency data. We explore the possibility of confusing long memory and structural breaks in the realized volatility of the following spot exchange rates: EUR/USD, EUR/JPY, EUR/CHF, EUR/GBP, and EUR/AUD. The results show evidence for the presence of long memory in the exchange rates' realized volatility. FromtheBai-Perrontest,wefoundstructuralbreakpointsthatmatch significant events in financial markets. Furthermore, the findings provide strong evidence in favour of the presence of long memory.

Domains: Humanities and Social Sciences; Economics and Finance; Humanities and Social Sciences; Quantitative Finance [q-fin]

Abderrazak Ben Maatoug, Rim Lamouchi, Russell Davidson, Ibrahim Fatnassi. Modelling Foreign Exchange Realized Volatility Using High Frequency Data: Long Memory versus Structural Breaks. Central European Journal of Economic Modelling and Econometrics (CEJEME), 2018, 10 (1), pp.1-25. ⟨hal-01982032⟩