Memory in Returns and Volatilities of Commodity Futures’ Contracts

Various authors claim to have found evidence of stochastic long memory behavior in futures’ contract returns using the Hurst statistic. This paper reexamines futures’ returns for evidence of persistent behavior using a biased-corrected version of the Hurst statistic and an estimate of the long-memory parameter based on the process spectrum. Results based on these new methods provide no evidence for persistent behavior in futures’ returns. However, it finds overwhelming evidence of long memory behavior for the volatility of futures’ returns. This finding adds to the emerging literature on persistent volatility in financial markets and suggests the use of new methods of forecasting volatility, assessing risk, and optimizing portfolios in futures’ markets. Contact Author: Nuno Crato, Department of Mathematical Sciences, New Jersey Institute of Technology, Newark, NJ 07102 Phone: (973) 596-3427, Fax: (973) 596-6467, e-mail: [email protected]