Detecting long-range dependence with truncated ratios of periodogram ordinates

Abstract

We propose new tests for testing hypotheses about the memory parameter that are based on ratios of periodogram ordinates. They are highly robust against conditional heteroskedasticity and outliers and are therefore of great value for the detection of long-range dependence in financial data. The robustness is obtained by truncation of a distribution with nonexistent moments. Tables of critical values are provided. The performance of the new tests is assessed by extensive simulations. Applying the tests to daily series of gold price returns and stock index returns, we find no evidence of long-range dependence characterized by a non-vanishing memory parameter. In the case of spread series (differences between interest rates at different maturities, gold prices and silver prices, related stock market indices), we find no evidence of a memory parameter well below 0.5.