Long Memory in the Volatility of the Australian All Ordinaries Index and the Share Price Index Futures

Abstract

This paper tests for long memory in the volatility of the All Ordinaries Index and its Share Price Index (SPI) futures. This has important implications for those agents concerned with the long term volatility in these markets. We use daily data and a short span of high frequency data to estimate the fractional differencing parameter, examine the fit of the implied autocorrelation function, and calculate the modified R/S and KPSS test statistics. All procedures support the existence of long memory in volatility in both markets except the KPSS test on the index using daily data. We argue that this is due to the low power of the KPSS test.