A search for long-range dependence and chaotic structure in Indian stock market
This study tests for the presence of nonlinear dependence and deterministic chaos in the rate of returns series for six Indian stock market indices. The overall result of our analysis suggests that the returns series do not follow a random walk process. Rather it appears that the daily increments in stock returns are serially correlated and the estimated Hurst exponents are indicative of marginal persistence in equity returns. Result from the test of independence on filtered residuals suggests that the existence of nonlinear dependence, at least to some extent, can be attributed to the presence of conditional heteroskedasticity. It appears, therefore, that low order GARCH-type models can adequately explain some, but not all, of the observed nonlinear dependence in the data. Further, we find very little evidence to support the proposition that returns are generated by a chaotic system. Only in two out of six cases the results are supportive of sensitive dependence on initial condition, which indicates chaos. Presence of chaos in market indices implies that profitable nonlinearity based trading rules may exist at least in the short-run. Finally, fairly contrary to the findings of previous studies, rejection of random walk hypothesis offers some possibility of returns predictability.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Abhyankar, A & Copeland, L S & Wong, W, 1997. "Uncovering Nonlinear Structure in Real-Time Stock-Market Indexes: The S&P 500, the DAX, the Nikkei 225, and the FTSE-100," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 1-14, January.
- Andrew W. Lo & A. Craig MacKinlay, 1987.
"Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test,"
NBER Working Papers
2168, National Bureau of Economic Research, Inc.
- Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
- Opong, Kwaku K. & Mulholland, Gwyneth & Fox, Alan F. & Farahmand, Kambiz, 1999. "The behaviour of some UK equity indices: An application of Hurst and BDS tests1," Journal of Empirical Finance, Elsevier, vol. 6(3), pages 267-282, September.
- Sophie Robé & Reinhold Kosfeld, 2001. "Testing for nonlinearities in German bank stock returns," Empirical Economics, Springer, vol. 26(3), pages 581-597.
- Billy P. Helms & Fred R. Kaen & Robert E. Rosenman, 1984. "Memory in commodity futures contracts," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 4(4), pages 559-567, December.
- Barnett, William A. & Serletis, Apostolos, 2000.
"Martingales, nonlinearity, and chaos,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 24(5-7), pages 703-724, June.
- William A. Barnett & Apostolos Serletis, 1998. "Martingales, Nonlinearity, and Chaos," Econometrics 9805003, EconWPA.
- William Barnett & Apostolos Serletis, 2012. "Martingales, Nonlinearity, And Chaos," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201225, University of Kansas, Department of Economics, revised Sep 2012.
- Hsieh, David A, 1989. "Testing for Nonlinear Dependence in Daily Foreign Exchange Rates," The Journal of Business, University of Chicago Press, vol. 62(3), pages 339-68, July.
- Brooks, Chris, 1998. "Chaos in Foreign Exchange Markets: A Sceptical View," Computational Economics, Society for Computational Economics, vol. 11(3), pages 265-81, June.
- Abhyankar, A & Copeland, L S & Wong, W, 1995. "Nonlinear Dynamics in Real-Time Equity Market Indices: Evidence from the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(431), pages 864-80, July.
- Couillard, Michel & Davison, Matt, 2005. "A comment on measuring the Hurst exponent of financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 348(C), pages 404-418.
- Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August.
- Cheung, Yin-Wong & Lai, Kon S., 1995. "A search for long memory in international stock market returns," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 597-615, August.
- Hoque, Hafiz A.A.B. & Kim, Jae H. & Pyun, Chong Soo, 2007. "A comparison of variance ratio tests of random walk: A case of Asian emerging stock markets," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 488-502.
- Steven C. Blank, 1991. "“Chaos” in futures markets? A nonlinear dynamical analysis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 11(6), pages 711-728, December.
- Batten, Jonathan & Ellis, Craig & Mellor, Robert, 1999. "Scaling laws in variance as a measure of long-term dependence," International Review of Financial Analysis, Elsevier, vol. 8(2), pages 123-138, June.
- Pandey, Vivek & Kohers, Theodor & Kohers, Gerald, 1998. "Deterministic Nonlinearity in the Stock Returns of Major European Equity Markets and the United States," The Financial Review, Eastern Finance Association, vol. 33(1), pages 45-63, February.
- Baillie, Richard T & Bollerslev, Tim, 1989. " Common Stochastic Trends in a System of Exchange Rates," Journal of Finance, American Finance Association, vol. 44(1), pages 167-81, March.
- Jacobsen, Ben, 1996. "Long term dependence in stock returns," Journal of Empirical Finance, Elsevier, vol. 3(4), pages 393-417, December.
- Serletis, Apostolos & Shintani, Mototsugu, 2006. "Chaotic monetary dynamics with confidence," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 228-252, March.
- L. C. G. Rogers, 1997. "Arbitrage with Fractional Brownian Motion," Mathematical Finance, Wiley Blackwell, vol. 7(1), pages 95-105.
- Hinich, Melvin J & Patterson, Douglas M, 1985. "Evidence of Nonlinearity in Daily Stock Returns," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 69-77, January.
- Serletis, Apostolos & Gogas, Periklis, 1997.
"Chaos in East European black market exchange rates,"
Research in Economics,
Elsevier, vol. 51(4), pages 359-385, December.
- Serletis, A. & Gogas, P., 1997. "Chaos in East European Black-Market Exchange Rates," Papers 9708, Calgary - Department of Economics.
- Lo, Andrew W. (Andrew Wen-Chuan), 1989.
"Long-term memory in stock market prices,"
3014-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Claire G. Gilmore, 1996. "Detecting Linear and Nonlinear Dependence in Stock Returns: New Methods Derived from Chaos Theory," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 23(9-10), pages 1357-1377, December.
- Murray Frank & Thanasis Stengos, 1989. "Measuring the Strangeness of Gold and Silver Rates of Return," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 553-567.
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
- Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Howe, John S. & Martin, Deryl W. & WoodJr., Bob G., 1999. "Much ado about nothing: Long-term memory in Pacific Rim equity markets," International Review of Financial Analysis, Elsevier, vol. 8(2), pages 139-151, June.
When requesting a correction, please mention this item's handle: RePEc:eee:revfin:v:20:y:2011:i:2:p:96-104. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.