Modeling long-term memory effect in stock prices: A comparative analysis with GPH test and Daubechies wavelets
Purpose - This paper, using Turkish stock index data, set outs to present long-term memory effect using chaotic and conventional unit root tests and investigate if chaotic technique as wavelets captures long-memory better than conventional techniques. Design/methodology/approach - Haar and Daubechies as wavelet-based OLS estimator and GPH and other classical models are applied in order to investigate the performance of long memory in the time series. Findings - The results indicate that Daubechies wavelet analysis provide the accurate determination for long memory where conventional techniques does not. Originality/value - The research results have both methodological and practical originality. On the theoretical side, the wavelet-based OLS estimator is superior in modeling the behaviours of the stock returns in emerging markets where non-linearities and high volatility exist due to their chaotic natures. For practical aims, on the other hand, the results show that the Istanbul Stock Exchange is not in the weak-form efficient because the prices have memories that are not reflected in the prices, yet.
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Volume (Year): 25 (2008)
Issue (Month): 1 (March)
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References listed on IDEAS
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- Jensen, Mark J., 2000. "An alternative maximum likelihood estimator of long-memory processes using compactly supported wavelets," Journal of Economic Dynamics and Control, Elsevier, vol. 24(3), pages 361-387, March.
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- Sowell, Fallaw, 1990. "The Fractional Unit Root Distribution," Econometrica, Econometric Society, vol. 58(2), pages 495-505, March. Full references (including those not matched with items on IDEAS)
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