Long memory versus structural breaks in modeling and forecasting realized volatility

Kyongwook Choi, Wei Choun Yu, Eric Zivot

Research output: Contribution to journalArticlepeer-review

81 Scopus citations


We explore the possibility of structural breaks in the daily realized volatility of the Deutschemark/Dollar, Yen/Dollar and Yen/Deutschemark spot exchange rates with observed long memory behavior. We find that structural breaks in the mean can partly explain the persistence of realized volatility. We propose a VAR-RV-Break model that provides superior predictive ability when the timing of future breaks is known. With unknown break dates and sizes, we find that a VAR-RV-. I(d) long memory model provides a robust forecasting method even when the true financial volatility series are generated by structural breaks.

Original languageEnglish
Pages (from-to)857-875
Number of pages19
JournalJournal of International Money and Finance
Issue number5
StatePublished - Sep 2010


  • Exchange rate
  • Fractional integration
  • Long memory
  • Realized volatility
  • Structural break
  • Volatility forecasting


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