Modelling Foreign Exchange Realized Volatility Using High Frequency Data Long Memory versus Structural Breaks

Abstract

In this study, we model realized volatility constructed from intra-day highfrequency data. We explore the possibility of confusing long memory and
structural breaks in the realized volatility of the following spot exchange rates:
EUR/USD, EUR/JPY, EUR/CHF, EUR/GBP, and EUR/AUD. The results
show evidence for the presence of long memory in the exchange rates’ realized
volatility. From the Bai–Perron test, we found structural breakpoints that match
significant events in financial markets. Furthermore, the findings provide strong
evidence in favour of the presence of long memory.