Are Stock Returns Long Term Dependent? Some Empirical Evidence

Posted: 28 Jun 1998

See all articles by Ben Jacobsen

Ben Jacobsen

Tilburg University - TIAS School for Business and Society; Massey University

Abstract

We show that investigation of the return series of indices of five European countries, the United States and Japan rejects the conclusion of long term dependence in these series. The statistic used to establish this result is the 'modified' rescaled range, suggested by Lo (1991). This statistic adjusts the 'classical' rescaled range (introduced by Hurst (1951)) for short term dependence. We also report additional results of a Monte Carlo simulation to determine the empirical size and finite sample distribution of these statistics when the data exhibit so-called volatility clustering. Our simulation evidence indicates that in the presence of short term dependence and volatility clustering the modified and classical rescaled range reject the null hypothesis of no long term dependence too frequently.

JEL Classification: C20, G10

Suggested Citation

Jacobsen, Ben, Are Stock Returns Long Term Dependent? Some Empirical Evidence. Journal of International Financial Markets, Institutions and Money, Vol. 5, No. 2/3, 1995. Available at SSRN: https://ssrn.com/abstract=7459

Ben Jacobsen (Contact Author)

Tilburg University - TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

Massey University ( email )

Auckland
New Zealand

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