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Exploring Dual Long Memory in Returns and Volatility Across Central and Eastern Europe Stock Markets

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  • Mihaela Sandu

Abstract

We investigate the presence of long memory in emerging CEE stock markets using the nonparametric, semiparametric and parametric approaches. We consider the methodology of Bai and Peron to test for structural breaks in the return series and we perform tests of fractionally integrated process on subsamples in order to identify potential evidence of spurious long memory. We test for long memory in both conditional mean and conditional variance by combining a fractionally integrated regression function and a fractionally integrated skedastic function.We estimate ARFIMA-GARCH and ARFIMA-FIGARCH models under two proposed distributions. The skewed Student-t distribution is found to better describe the data comparing to Gaussian distribution. We conclude that the Romanian, Hungarian and Czech Republic capital markets show evidence of dual long memory in returns and volatility, while the Bulgarian and Poland markets show strong features of long memory in volatility, but no long memory in the return series.

Suggested Citation

  • Mihaela Sandu, 2009. "Exploring Dual Long Memory in Returns and Volatility Across Central and Eastern Europe Stock Markets," Advances in Economic and Financial Research - DOFIN Working Paper Series 40, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
    • Handle: RePEc:cab:wpaefr:40
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    File URL: http://www.dofin.ase.ro/Working%20papers/Sandu%20Mihaela/sandu.mihaela.dissertation.pdf
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    Keywords

    long memory; stock market; ARFIMA; FIGARCH;
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