Is There More to Long Memory in Fixed-Income Excess Returns and Volatility than Structural Instability?
Author InfoRobert A. Connolly, Nuray G½ner, and Kenneth N. Hightower Abstract Unlike equity returns, many fixed-income return and volatility measures appear to display considerable long memory. Connolly and G½ner (working paper, 1999) show this holds particularly strongly for shorter-maturity Treasury securities in the U.S. They show that fixed-income return and volatility series for other G-7 countries also display long memory. In a number of recent papers, Granger has argued that long memory in returns may only reflect infrequent structural breaks. He finds the case for long memory in volatility much stronger. Parke (Review of Economics and Statistics, 2000) develops a model that generates long memory through a type of structural shift. In this paper, we show that the extent of long memory depends crucially on whether gross or excess returns are under consideration and we provide a simple demonstration of why this distinction is so important. We also carefully explore the impact of s
