22 Jul

Pirino D. (2009). Jump detection and long range dependence. Physica A, 388(7), 1150-1156.

Memory properties of financial assets are investigated. Using Detrended Fluctuation Analysis we show that the long memory detection in volatility is affected by the presence of jumps, realized volatility being a biased volatility proxy. We propose threshold bipower variation as an alternative volatility estimator unaffected by discontinuous variations. We also show that, with typical sample sizes, DFA is unable to disentangle long memory from short range dependence with characteristic time comparable to the whole sample length.