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Uncovering Long Memory in High Frequency UK Futures

Cotter, John (2004): Uncovering Long Memory in High Frequency UK Futures. Published in: European Journal of Finance , Vol. 11, (2005): pp. 325-337.

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Abstract

Accurate volatility modelling is paramount for optimal risk management practices. One stylized feature of financial volatility that impacts the modelling process is long memory explored in this paper for alternative risk measures, observed absolute and squared returns for high frequency intraday UK futures. Volatility series for three different asset types, using stock index, interest rate and bond futures are analysed. Long memory is strongest for the bond contract. Long memory is always strongest for the absolute returns series and at a power transformation of k < 1. The long memory findings generally incorporate intraday periodicity. The APARCH model incorporating seven related GARCH processes generally models the futures series adequately documenting ARCH, GARCH and leverage effects. Keywords: Long Memory, APARCH, High Frequency Futures

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