HAR Model and Long Memory in Financial Market

Abstract

With the development of nonlinear science, the existence of long memory in the financial market volatility has been found, which is inconsistent with the weak form of Efficient Market Hypothesis. With the brief introduction of Heterogeneous Market Hypothesis and Fractal Market Hypothesis, the long memory behavior of Shanghai Stock Index's returns volatility is tested, based on H/S analysis and GPH method. By using the realized volatility to measure the true volatility and combining with the analysis of ARFIMA-RV and HAR-RV model, Shanghai Stock Index's RV series' long memory behavior is confirmed, and HAR-RV model behaves better in the prediction of volatility.