ARFIMA Models and the Hurst Measures: An Investigation of Commodity Daily Index and Futures Prices

29 Pages Posted: 17 Feb 2016

See all articles by Hirbod Assa

Hirbod Assa

Kent Business School

Meng Wang

University of Liverpool - Institute of Financial and Actuarial Mathematics

Calum G. Turvey

Cornell University - School of Applied Economics and Management

Date Written: December 14, 2015

Abstract

In this paper, we study some important stylized facts of commodity daily index and future prices. Our study shows that, except few, all price processes have unit roots with stationary, skewed and kurtotic increments whose R/S and generalized Hurst exponents are greater than 1/2. As a result, ARFIMA(p-1,1 d,q) models with skewed and kurtotic shocks can be good candidates for modelling commodity daily index and future prices. On the other hand, since non-linear models are practically very difficult to implement, we study linear models with fat tail shock processes. We have observed that, even though linear models with fat tail shock processes cannot generate long memory time series, they can generate time series with generalized Hurst exponents similar to ones from the commodity daily index and future prices. This suggests that with regards to the generalized Hurst exponent, linear ARIMA(p-1,1,q) models with alpha-stable shock processes are good models with statistical characteristics very similar to commodity daily prices.

JEL Classification: C32

Suggested Citation

Assa, Hirbod and Wang, Meng and Turvey, Calum G., ARFIMA Models and the Hurst Measures: An Investigation of Commodity Daily Index and Futures Prices (December 14, 2015). Available at SSRN: https://ssrn.com/abstract=2733162 or http://dx.doi.org/10.2139/ssrn.2733162

Hirbod Assa (Contact Author)

Kent Business School ( email )

Finance
Canterbury
United Kingdom
447522173132 (Phone)

HOME PAGE: http://www.hirbod-assa.com/index.html

Meng Wang

University of Liverpool - Institute of Financial and Actuarial Mathematics ( email )

Peach Street
Liverpool, L697ZL
United Kingdom
07460386765 (Phone)

Calum G. Turvey

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

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