@article{Power:9782,
      recid = {9782},
      author = {Power, Gabriel J. and Turvey, Calum G.},
      title = {Spurious Long Memory in Commodity Futures: Implications  for Agribusiness Option Pricing},
      address = {2007},
      number = {381-2016-22100},
      series = {Selected Paper no. 174577},
      pages = {32},
      year = {2007},
      abstract = {Long memory, and more precisely fractionally integration,  has been put forward as an explanation for the persistence  of shocks in a number of economic time series data as well  as to reconcile misleading findings of unit roots in data  that should be stationary. Recent evidence suggests that  long memory characterizes not commodity futures prices but  rather price volatility (generally defined as $L_p$ norms  of price logreturns). One implication of long memory in  volatility is the mispricing of options written on  commodity futures, the consequence of which is that  fractional Brownian motion should replace geometric  Brownian motion as the building block for option pricing  solutions. This paper asks whether findings of long memory  in volatility might be spurious and caused either by  fragile and inaccurate estimation methods and standard  errors, by correlated short memory dynamics, or by  alternative data generating processes proven to generate  the illusion of long memory. We find that for nine out of  eleven agricultural commodities for which futures contracts  are traded, long memory is spurious but is not caused by  the effect of short memory. Alternative explanations are  addressed and implications for option pricing are  highlighted.},
      url = {http://ageconsearch.umn.edu/record/9782},
      doi = {https://doi.org/10.22004/ag.econ.9782},
}