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Long memory volatility in Asian stock markets

Long memory volatility in Asian stock markets PurposeThe purpose of this paper is to assess to what extent intraday data can explain and predict long-term memory.Design/methodology/approachThis article analysed the presence of long-memory volatility in five Asian equity indices, namely, SENSEX, CNIA, NIKKEI225, KO11 and FTSTI, using five-min intraday return series from 05 January 2015 to 06 August 2015 using two approaches, i.e. conditional volatility and realized volatility, for forecasting long-term memory. It employs conditional-generalized autoregressive conditional heteroscedasticity (GARCH), i.e. autoregressive fractionally integrated moving average (ARFIMA)-FIGARCH model and ARFIMA-asymmetric power autoregressive conditional heteroscedasticity (APARCH) models, and unconditional volatility realized volatility using autoregressive integrated moving average (ARIMA) and ARFIMA in-sample forecasting models to estimate the persistence of the long-term memory.FindingsGiven the GARCH framework, the ARFIMA-APARCH long-memory model gave the better forecast results signifying the importance of accounting for asymmetric information when modelling volatility in a financial market. Using the unconditional realized volatility results from the Singapore and Indian markets, the ARIMA model outperforms the ARFIMA model in terms of forecast performance and provides reasonable forecasts.Practical implicationsThe issue of long memory has important implications for the theory and practice of finance. It is well-known that accurate volatility forecasts are important in a variety of settings including option and other derivatives pricing, portfolio and risk management.Social implicationsIt could be said that using long-memory augmented models would give better results to investors so that they could analyse the market trends in returns and volatility in a more accurate manner and reach at an informed decision. This is useful to minimize the risks.Originality/valueThis research enhances the literature by estimating the influence of intraday variables on daily volatility. This is one of very few studies that uses conditional GARCH framework models and unconditional realized volatility estimates for forecasting long-term memory. The authors find that the methods complement each other. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Pacific Accounting Review Emerald Publishing

Long memory volatility in Asian stock markets

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0114-0582
DOI
10.1108/PAR-02-2016-0009
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to assess to what extent intraday data can explain and predict long-term memory.Design/methodology/approachThis article analysed the presence of long-memory volatility in five Asian equity indices, namely, SENSEX, CNIA, NIKKEI225, KO11 and FTSTI, using five-min intraday return series from 05 January 2015 to 06 August 2015 using two approaches, i.e. conditional volatility and realized volatility, for forecasting long-term memory. It employs conditional-generalized autoregressive conditional heteroscedasticity (GARCH), i.e. autoregressive fractionally integrated moving average (ARFIMA)-FIGARCH model and ARFIMA-asymmetric power autoregressive conditional heteroscedasticity (APARCH) models, and unconditional volatility realized volatility using autoregressive integrated moving average (ARIMA) and ARFIMA in-sample forecasting models to estimate the persistence of the long-term memory.FindingsGiven the GARCH framework, the ARFIMA-APARCH long-memory model gave the better forecast results signifying the importance of accounting for asymmetric information when modelling volatility in a financial market. Using the unconditional realized volatility results from the Singapore and Indian markets, the ARIMA model outperforms the ARFIMA model in terms of forecast performance and provides reasonable forecasts.Practical implicationsThe issue of long memory has important implications for the theory and practice of finance. It is well-known that accurate volatility forecasts are important in a variety of settings including option and other derivatives pricing, portfolio and risk management.Social implicationsIt could be said that using long-memory augmented models would give better results to investors so that they could analyse the market trends in returns and volatility in a more accurate manner and reach at an informed decision. This is useful to minimize the risks.Originality/valueThis research enhances the literature by estimating the influence of intraday variables on daily volatility. This is one of very few studies that uses conditional GARCH framework models and unconditional realized volatility estimates for forecasting long-term memory. The authors find that the methods complement each other.

Journal

Pacific Accounting ReviewEmerald Publishing

Published: Aug 7, 2017

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