Realized Volatility Dynamics in Commodity Futures Markets : Application of the Long Memory Model

Abstract

Realized volatility has become a recently popular measure for asset return risk management area since the measure is simple to calculate and is known to describe the volatility dynamics well. In this paper, we apply the realized volatility measure to commodity futures market and study the volatility dynamics by using the ARFIMA model. In addition, we consider information flow and time-to-maturity effect, a well known issue for the commodity markets, and examine the dependency structures between the realized volatilities for different commodity futures. Our finding is that the realized volatility for the commodity futures exhibits the long memory property, and the effect of information flow on the realized volatility is remarkable.