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Journal article
Long memory and structural breaks in modeling the return and volatility dynamics of precious metals
The Quarterly review of economics and finance, v 52(2), pp 207-218
May 2012
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Abstract
► The potential of structural change and long memory properties in returns and volatility of the four major precious metal commodities is investigated. ► We find strong evidence of long range dependence in the daily conditional return and volatility processes. ► For most of the precious metals, the dual long memory can be adequately captured by an ARFIMA–FIGARCH model. ► Conditional volatility of precious metals is better explained by long memory than by structural breaks. ► The ARFIMA–FIGARCH model provides more accurate volatility forecasts than several popular volatility models.
We investigate the potential of structural changes and long memory (LM) properties in returns and volatility of the four major precious metal commodities traded on the COMEX markets (gold, silver, platinum and palladium). Broadly speaking, a random variable is said to exhibit long memory behavior if its autocorrelation function is not integrable, while structural changes can induce sudden and significant shifts in the time-series behavior of that variable. The results from implementing several parametric and semiparametric methods indicate strong evidence of long range dependence in the daily conditional return and volatility processes for the precious metals. Moreover, for most of the precious metals considered, this dual long memory is found to be adequately captured by an ARFIMA–FIGARCH model, which also provides better out-of-sample forecast accuracy than several popular volatility models. Finally, evidence shows that conditional volatility of precious metals is better explained by long memory than by structural breaks.
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Details
- Title
- Long memory and structural breaks in modeling the return and volatility dynamics of precious metals
- Creators
- Mohamed El Hedi Arouri - CRCGM, University of Auvergne, 41 Bld François Mitterrand, 63002 Clermont-Ferrand, FranceShawkat Hammoudeh - Drexel UniversityAmine Lahiani - Rennes School of BusinessDuc Khuong Nguyen - ISC Paris School of Management, 22 Boulevard du Fort de Vaux, 75017 Paris, France
- Publication Details
- The Quarterly review of economics and finance, v 52(2), pp 207-218
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000437629900012
- Scopus ID
- 2-s2.0-84861851544
- Other Identifier
- 991019167827704721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Economics