Testing Long Memory in Stock Returns of Emerging Markets: Some Further Evidence

Abstract

The purpose of this paper is to examine the issue of long memory stock returns of emerging markets. The study carries out a biased reduced semi parametric test to detect long memory in mean process. The results suggest no strong evidence of long memory in mean process of stock returns both in emerging and developed markets. The results are in contrast with earlier studies, which conclude that emerging markets in general characterized by long memory process. Hence, long memory is not a peculiar characteristic of emerging markets but appear to be stylized fact of asset returns irrespective of stage of development of the market. The test results are reliable and preferable to other test of long memory as it reduces bias in the estimation. The results suggest that short memory forecasting methods are relevant for predicting the future returns.

Keywords: long memory, volatility persistence, mean-reversion, semi-parametric test, hyperbolic decay, market efficiency, emerging markets, BSE, NSE, Indian stock market

JEL Classification: G14, C14, C58