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Mean reversion and long memory in African stock market prices

  • Luis A. Gil-Alana

    ()

    (Facultad de Ciencias Económicas y Empresariales, Universidad de Navarra)

  • Emmanuel Anoruo

    (Coppin State University, Baltimore, MD, USA)

We examine the behavior of stock market prices in several African countries by means of fractionally integrated techniques. In doing so, we can test the random walk hypothesis along with other approaches like the 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 is obtained in the cases of Egypt and Nigeria, and, in a lesser extent in Tunisia, Morocco and Kenya. Permitting the existence of a structural break in the data, the break dates take place in the earlier 2000s in the majority of the cases, and evidence of mean reversion seems to have taken place in the 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.

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File URL: http://www.unav.edu/documents/10174/6546776/1265713096_WP_UNAV_05_10.pdf
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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 05/10.

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Length: 25 pages
Date of creation: 09 Feb 2010
Date of revision:
Handle: RePEc:una:unccee:wp0510
Contact details of provider: Web page: http://www.unav.edu/web/facultad-de-ciencias-economicas-y-empresariales

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  1. Paul Alagidede & Theodore Panagiotidis, 2009. "Modelling stock returns in Africa’s emerging equity markets," Discussion Paper Series 2009_01, Department of Economics, University of Macedonia, revised Jan 2009.
  2. Luis A. Gil-Alana, 2008. "Fractional integration and structural breaks at unknown periods of time," Journal of Time Series Analysis, Wiley Blackwell, vol. 29(1), pages 163-185, 01.
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  4. Assaf, A., 2006. "Dependence and mean reversion in stock prices: The case of the MENA region," Research in International Business and Finance, Elsevier, vol. 20(3), pages 286-304, September.
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  6. Christopher F. Baum & John Barkoulas, 1996. "Long Term Dependence in Stock Returns," Boston College Working Papers in Economics 314., Boston College Department of Economics.
  7. Rehim Kili, 2004. "On the long memory properties of emerging capital markets: evidence from Istanbul stock exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 14(13), pages 915-922.
  8. Gil-Alana, L. A. & Robinson, P. M., 1997. "Testing of unit root and other nonstationary hypotheses in macroeconomic time series," Journal of Econometrics, Elsevier, vol. 80(2), pages 241-268, October.
  9. C. W. J. Granger & Zhuanxin Ding, 1995. "Some Properties of Absolute Return: An Alternative Measure of Risk," Annals of Economics and Statistics, GENES, issue 40, pages 67-91.
  10. James M. Poterba & Lawrence H. Summers, 1987. "Mean Reversion in Stock Prices: Evidence and Implications," NBER Working Papers 2343, National Bureau of Economic Research, Inc.
  11. M. Magnusson & B. Wydick, 2002. "How Efficient are Africa's Emerging Stock Markets?," Journal of Development Studies, Taylor & Francis Journals, vol. 38(4), pages 141-156.
  12. 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.
  13. Sowell, Fallaw, 1992. "Maximum likelihood estimation of stationary univariate fractionally integrated time series models," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 165-188.
  14. Jussi Tolvi, 2003. "Long memory and outliers in stock market returns," Applied Financial Economics, Taylor & Francis Journals, vol. 13(7), pages 495-502.
  15. 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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  17. repec:adr:anecst:y:1995:i:40:p:04 is not listed on IDEAS
  18. Koong, C.S. & Tsui, Albert K. & Chan, W.S., 1997. "On tests for long memory in Pacific Basin stock returns," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 43(3), pages 445-449.
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