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IDENTIFYING NONLINEAR SERIAL DEPENDENCE IN VOLATILE, HIGH-FREQUENCY TIME SERIES AND ITS IMPLICATIONS FOR VOLATILITY MODELING

  • Phillip Wild (a1), John Foster (a1) and Melvin J. Hinich (a2)
Abstract

In this article, we show how tests of nonlinear serial dependence can be applied to high-frequency time series data that exhibit high volatility, strong mean reversion, and leptokurtotis. Portmanteau correlation, bicorrelation, and tricorrelation tests are used to detect nonlinear serial dependence in the data. Trimming is used to control for the presence of outliers in the data. The data that are employed are 161,786 half-hourly spot electricity price observations recorded over nearly a decade in the wholesale electricity market in New South Wales, Australia. Strong evidence of nonlinear serial dependence is found and its implications for time series modeling are discussed.

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Corresponding author
Address correspondence to: Phillip Wild, School of Economics, University of Queensland, St. Lucia, QLD 4072, Australia; e-mail: p.wild@uq.edu.au.
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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
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