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Seoul Journal of Economics - Vol. 20 , No. 2
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Seoul Journal of Economics - Vol. 20, No. 2, pp. 201-222
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 May 2007
Received 27 Feb 2006 Revised 29 Dec 2006

Poisson Jumps and Long Memory Volatility Process in High Frequency European Exchange Rates
Young Wook Han
Assistant Professor, Department of Economics, Hallym University, Chuncheon, Gangwon-Do 200-702, Korea, Tel: +82-33-248-1820, Fax: +82-33-256-3424 (ywhan@hallym.ac.kr)

Funding Information ▼

JEL Classification: C13, C22, F31, G14

Abstract

This paper analyzes the intriguing features of 30-minute European foreign exchange rates during the year 1996; jumps and long memory volatility process. The FIGARCH model with the Poisson distribution is applied in order to consider both the jumps in the conditional mean process and the long memory property in the conditional variance process of the high frequency foreign exchange returns series. The general results show that the Poisson distribution accounts for the jumps in the high frequency foreign exchange rates returns quite well and that the jumps seem to spuriously induce higher long memory property in the high frequency foreign exchange returns. Hence, the FIGARCH model with the Poisson distribution appears to be quite appropriate for the specification of the high frequency returns.

Keywords: High frequency foreign exchange rates, FIGARCH, Long memory property, Normal mixture distribution, Poisson jump process
Acknowledgments

I am very grateful to the Editor, In Ho Lee and two anonymous referees for useful comments and suggestions and gratefully acknowledge the financial support from Hallym University Research Fund (HRF 2005). I also thank Olsen and Associates and MMS (Money Market Service) International for making available the high frequency exchange rate data and the public macroeconomic news of the US and Germany during 1996.

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