A Non-Random Walk Revisited: Short- and Long-Term Memory in Asset Prices

51 Pages Posted: 8 Dec 2008

See all articles by Paul Eitelman

Paul Eitelman

Federal Reserve Board

Justin Vitanza

Board of Governors of the Federal Reserve System

Date Written: November 21, 2008

Abstract

In this paper, we test for short and long memory in asset prices across 44 emerging and industrialized economies. Using methodology from Lo and MacKinlay (1988) and Lo (1991), we find that markets with a poor Sharpe ratio are more likely to reject the random walk than better performing markets. We also make a methodological contribution. Contrary to the Baillie (1996) criticism, our long memory analysis suggests that the choice of a truncation lag is not as important as one might initially believe. Tests that reject the null hypothesis tend to do so across any reasonable choice in lag.

Keywords: random walk, long-range dependence, equities, commodities, exchange rates

JEL Classification: E30, G14

Suggested Citation

Eitelman, Paul and Vitanza, Justin, A Non-Random Walk Revisited: Short- and Long-Term Memory in Asset Prices (November 21, 2008). Available at SSRN: https://ssrn.com/abstract=1311889 or http://dx.doi.org/10.2139/ssrn.1311889

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Federal Reserve Board ( email )

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Justin Vitanza

Board of Governors of the Federal Reserve System ( email )

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Washington, DC 20551
United States

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