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The long-term memory of stock markets: unveiling patterns and predictability

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  • Samuel Tabot Enow

    (Research Associate, The IIE VEGA School)

Abstract

The efficient market hypothesis assumes that financial markets fully incorporate all available information, rendering past information irrelevant for predicting future prices. However, numerous studies challenge this notion and suggest the presence of long-term memory in market dynamics. Understanding long-term memory in financial markets has important implications for investors and policymakers. The aim of this study was to empirically investigate long term memory in financial markets. This study employed a Hurst model for a sample of 5 financial markets from June 1, 2018, to June 1, 2023. The findings revealed that four out of the five sampled financial market exhibits long term memory which challenges the efficient market hypothesis concept. Therefore, portfolio managers and active market participants can utilize long-term memory to optimize asset allocation decisions by considering the persistent effects of past returns and adjust portfolio weights to take advantage of potential return predictability and manage risk. Key Words:Long term memory; Hurst model; Efficient market hypothesis; Stock markets

Suggested Citation

  • Samuel Tabot Enow, 2024. "The long-term memory of stock markets: unveiling patterns and predictability," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 13(4), pages 286-291, June.
    • Handle: RePEc:rbs:ijbrss:v:13:y:2024:i:4:p:286-291
    DOI: 10.20525/ijrbs.v13i4.3274
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    References listed on IDEAS

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