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Predicting BRICS Stock Returns Using ARFIMA Models

  • Goodness C. Aye

    ()

    (Department of Economics, University of Pretoria)

  • Mehmet Balcilar

    ()

    (Department of Economics, Eastern Mediterranean University, Famagusta, North Cyprus,via Mersin 10, Turkey)

  • Rangan Gupta

    ()

    (Department of Economics, University of Pretoria)

  • Nicholas Kilimani

    ()

    (Department of Economics, University of Pretoria)

  • Amandine Nakumuryango

    ()

    (Department of Economics, University of Pretoria)

  • Siobhan Redford

    ()

    (Department of Economics, University of Pretoria)

This paper examines the existence of long memory in daily stock market returns from Brazil, Russia, India, China, and South Africa (BRICS) countries and also attempts to shed light on the efficacy of Autoregressive Fractionally Integrated Moving Average (ARFIMA) models in predicting stock returns. We present evidence which suggests that ARFIMA models estimated using a variety of estimation procedures yield better forecasting results than the non-ARFIMA (AR, MA, ARMA and GARCH) models with regard to prediction of stock returns. These findings hold consistently the different countries whose economies differ in size, nature and sophistication.

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Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201235.

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Length: 24 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:pre:wpaper:201235
Contact details of provider: Postal: PRETORIA, 0002
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Web page: http://www.up.ac.za/economics

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  1. Diebold, Francis X. & Rudebusch, Glenn D., 1989. "Long memory and persistence in aggregate output," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 189-209, September.
  2. Clark, Todd E. & McCracken, Michael W., 2001. "Tests of equal forecast accuracy and encompassing for nested models," Journal of Econometrics, Elsevier, vol. 105(1), pages 85-110, November.
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  8. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
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  19. repec:att:wimass:9417 is not listed on IDEAS
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  27. Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, vol. 73(1), pages 5-59, July.
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