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Long memory and outliers in stock market returns

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  • Jussi Tolvi
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    Abstract

    Long memory in the form of fractional integration is analysed in stock market returns. Special emphasis is placed on taking into account the potential bias caused by neglected outliers in the data. It is first shown by a simulation experiment that outliers will bias the estimated fractional integration parameter towards zero. In a monthly data set, consisting of stock market indices of 16 OECD countries, statistically significant long memory is found for three countries. In one of these long memory is only found when outliers are first taken into account.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100210161983
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 13 (2003)
    Issue (Month): 7 ()
    Pages: 495-502

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    Handle: RePEc:taf:apfiec:v:13:y:2003:i:7:p:495-502

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    Cited by:
    1. Emmanuel Anoruo & Luis Gil-Alana, 2011. "Mean reversion and long memory in African stock market prices," Journal of Economics and Finance, Springer, vol. 35(3), pages 296-308, July.
    2. Gil-Alana, L.A., 2006. "Fractional integration in daily stock market indexes," Review of Financial Economics, Elsevier, vol. 15(1), pages 28-48.
    3. Hull, Matthew & McGroarty, Frank, 2014. "Do emerging markets become more efficient as they develop? Long memory persistence in equity indices," Emerging Markets Review, Elsevier, vol. 18(C), pages 45-61.
    4. Luis A. Gil-Alana & Juncal Cuñado & Guglielmo Maria Caporale, 2012. "Modelling Long Run Trends and Cycles in Financial Time Series Data," Faculty Working Papers 13/12, School of Economics and Business Administration, University of Navarra.
    5. Luis A. Gil-Alana & Yun Cao, 2010. "Stock market prices in China. Efficiency, mean reversion, long memory volatility and other implicit dynamics," Faculty Working Papers 12/11, School of Economics and Business Administration, University of Navarra.
    6. Jussi Tolvi, 2003. "Long memory in a small stock market," Economics Bulletin, AccessEcon, vol. 7(3), pages 1-13.
    7. Sang-Hoon Kang & Hoa Nguyen, 2007. "Long Memory in the Australian Stock Market," Accounting, Finance, Financial Planning and Insurance Series 2007_18, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    8. Adnan Kasman & Erdost Torun, 2007. "Long Memory in the Turkish Stock Market Return and Volatility," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 7(2), pages 13-27.

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