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Mean reversion and long memory in African stock market prices

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  • Emmanuel Anoruo
  • Luis Alberiko Gil-Alaña

    () (Navarra Center for International Development)

Abstract

We examine the behaviour of stockmarket prices in several African countries by means of fractionally integrated techniques. In doung so, we can test for mean reversion in these markets. Our results can be summarized as follows: we cannot find evidence of mean reversion in any single market, and evidence of long memory returns (i.e.,orders of integration above 1 in the logged stock prices) is obtained in the cases of Egypt and Nigeria, and, in a lesser extent in Tunisia, Morocco and Kenya. Permittin theexistence of a s structural change, the breakdates take place in the earlier 2000s in the majority of the cases, and evidenceof mena reversio seems to have taken place in hte periods before the breaks in most of the countries. If we focus on the absolute and squared returns, evidence of long memory is obtained in Nigeria and Egypt. Thus, for these two countries, a long memory model incorporating positive fractional degrees of integration in both the level and the volatility process should be considered.

Suggested Citation

  • Emmanuel Anoruo & Luis Alberiko Gil-Alaña, 2010. "Mean reversion and long memory in African stock market prices," NCID Working Papers 01/2011, Navarra Center for International Development, University of Navarra.
  • Handle: RePEc:nva:unnvaa:wp01-2010
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    References listed on IDEAS

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    1. repec:eee:riibaf:v:44:y:2018:i:c:p:176-185 is not listed on IDEAS
    2. repec:eee:revfin:v:34:y:2017:i:c:p:61-73 is not listed on IDEAS
    3. Sugimoto, Kimiko & Matsuki, Takashi & Yoshida, Yushi, 2014. "The global financial crisis: An analysis of the spillover effects on African stock markets," Emerging Markets Review, Elsevier, vol. 21(C), pages 201-233.
    4. Guglielmo Maria Caporale & Luis Gil-Alana & Alex Plastun & Inna Makarenko, 2016. "Long memory in the Ukrainian stock market and financial crises," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(2), pages 235-257, April.
    5. repec:ere:journl:v:xxxvi:y:2017:i:1:p:1-24 is not listed on IDEAS
    6. Al-Shboul, Mohammad & Anwar, Sajid, 2016. "Fractional integration in daily stock market indices at Jordan's Amman stock exchange," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 16-37.
    7. Todd Moss and Ross Thuotte, 2013. "Nowhere Left to Hide? Stock Market Correlation, Regional Diversification, and the Case for Investing in Africa," Working Papers 316, Center for Global Development.
    8. Ezzat, Hassan, 2013. "Long Memory Processes and Structural Breaks in Stock Returns and Volatility: Evidence from the Egyptian Exchange," MPRA Paper 51465, University Library of Munich, Germany.
    9. repec:ibn:ijefaa:v:9:y:2017:i:8:p:40-50 is not listed on IDEAS

    More about this item

    Keywords

    long memory; fraction integration; stock market returns;

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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