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Long range dependence in stock market returns

  • Christos Christodoulou-Volos
  • Fotios Siokis
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    Many authors have investigated the possibility of long-range dependence, or long memory, in asset returns, but very little evidence has been found for long memory in either stock or exchange rate returns. This paper examines the presence of long-range dependence in a sample of 34 stock index returns using the semiparametric methods suggested by Geweke and Porter-Hudak (1983) and Robinson (1995). The results provide significant and robust evidence of fractional dynamics in most major and small stock markets over the sample periods. Depending on the test used, statistically significant long memory is detected in approximately 65% of the series. It appears that most stock returns are long-term dependent, suggesting stock market inefficiency and a high degree of predictability.

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

    Volume (Year): 16 (2006)
    Issue (Month): 18 ()
    Pages: 1331-1338

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    Handle: RePEc:taf:apfiec:v:16:y:2006:i:18:p:1331-1338
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    1. Granger, Clive W. J. & Ding, Zhuanxin, 1996. "Varieties of long memory models," Journal of Econometrics, Elsevier, vol. 73(1), pages 61-77, July.
    2. 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.
    3. Granger, Clive W.J. & Hyung, Namwon, 1999. "Occasional Structural Breaks and Long Memory," University of California at San Diego, Economics Working Paper Series qt4d60t4jh, Department of Economics, UC San Diego.
    4. Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, vol. 73(1), pages 5-59, July.
    5. William R. Parke, 1999. "What Is Fractional Integration?," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 632-638, November.
    6. John T. Barkoulas & Christopher F. Baum & Nickolaos Travlos, 1996. "Long Memory in the Greek Stock Market," Boston College Working Papers in Economics 356., Boston College Department of Economics.
    7. Sadique, Shibley & Silvapulle, Param, 2001. "Long-Term Memory in Stock Market Returns: International Evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(1), pages 59-67, January.
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