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Fractional integration versus level shifts : The case of realized asset correlations. / Bertram, P.; Kruse, Robinson; Sibbertsen, P.
In: Statistical Papers, Vol. 54, No. 4, 01.11.2013, p. 977-991.Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review
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TY - JOUR
T1 - Fractional integration versus level shifts
T2 - The case of realized asset correlations
AU - Bertram, P.
AU - Kruse, Robinson
AU - Sibbertsen, P.
PY - 2013/11/1
Y1 - 2013/11/1
N2 - Long memory has been widely documented for realized financial market volatility. As a novelty, we consider daily realized asset correlations and we investigate whether the observed persistence is (i) due to true long memory (i.e. fractional integration) or (ii) artificially generated by some structural break processes. These two phenomena are difficult to be distinguished in practice. Our empirical results strongly indicate that the hyperbolic decay of the autocorrelation functions of pair-wise realized correlation series is indeed not driven by a truly fractionally integrated process. This finding is robust against user specific parameter choices in the applied test statistic and holds for all 15 considered time series. As a next step, we apply simple models with deterministic level shifts. When selecting the number of breaks, estimating the breakpoints and the corresponding structural break models we find a substantial degree of co-movement between the realized correlation series hinting at co-breaking. The estimated structural break models are interpreted in the light of the historic economic and financial development.
AB - Long memory has been widely documented for realized financial market volatility. As a novelty, we consider daily realized asset correlations and we investigate whether the observed persistence is (i) due to true long memory (i.e. fractional integration) or (ii) artificially generated by some structural break processes. These two phenomena are difficult to be distinguished in practice. Our empirical results strongly indicate that the hyperbolic decay of the autocorrelation functions of pair-wise realized correlation series is indeed not driven by a truly fractionally integrated process. This finding is robust against user specific parameter choices in the applied test statistic and holds for all 15 considered time series. As a next step, we apply simple models with deterministic level shifts. When selecting the number of breaks, estimating the breakpoints and the corresponding structural break models we find a substantial degree of co-movement between the realized correlation series hinting at co-breaking. The estimated structural break models are interpreted in the light of the historic economic and financial development.
UR - http://www.scopus.com/inward/record.url?scp=84885918372&partnerID=8YFLogxK
U2 - 10.1007/s00362-013-0513-2
DO - 10.1007/s00362-013-0513-2
M3 - Journal article
AN - SCOPUS:84885918372
VL - 54
SP - 977
EP - 991
JO - Statistical Papers
JF - Statistical Papers
SN - 0932-5026
IS - 4
ER -