Fractional Integration in Commodity Futures Returns

30 Pages Posted: 7 Jul 2008 Last revised: 14 Jul 2008

See all articles by John Elder

John Elder

Colorado State University

Hyun Jin

Chung-Ang University

Date Written: July 7, 2008

Abstract

We reexamine commodity futures returns for evidence of fractional integration utilizing two estimators based on wavelets. We summarize basic wavelet methods for signal processing and decompose commodity futures returns by wavelet scale. We find the evidence for long memory is not conclusive based on visual inspection of the wavelet decomposition, but formal statistical tests suggest evidence of long memory, in the form of anti-persistence, in about half of agricultural commodity futures. We find little evidence of long memory in metal futures. Our results are useful in interpreting previous disparate findings based on frequency domain estimators.

Keywords: futures returns, fractional integration, long memory, wavelets

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JEL Classification: G10, Q14

Suggested Citation

Elder, John and Jin, Hyun, Fractional Integration in Commodity Futures Returns (July 7, 2008). Financial Review, 2008, Available at SSRN: https://ssrn.com/abstract=1156337

John Elder (Contact Author)

Colorado State University ( email )

Dept of Finance & Real Estate
1272 Campus Delivery
Fort Collins, CO 80523
United States
970-491-2952 (Phone)

HOME PAGE: http://lamar.colostate.edu/~jelder

Hyun Jin

Chung-Ang University ( email )

Korea

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