Long Memory in Stock Returns: Evidence from The Dhaka Stock Exchange
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Published
Sep 1, 2007
Abstract
This study examines the long memory property in the weekly return series and its certain transformations of the Dhaka Stock Exchange over the period of January 1989 to January 2004. Well-known methods for detecting the long memory property of a time series such as the classical rescaled range (originally developed by Hurst, 1951) and its modified version propounded by Lo (1991) are used. Empirical results obtained in this study suggest statistically significant but weak evidence of long memory for weekly stock returns at levels. But for nonlinear transformations of return, such as the absolute and squared returns, the series show strong and significant long memory. The finding that above mentioned transformations of return series contain long memory supports the claim made by Taylor (1986) and Ding et al. (1993).
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Keywords
Stock Exchange
References
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• Beran, J., (1994), Statistics for Long Memory Processes, Monographs on Statistics and Applied Probability, 61, New York: Chapman & Hall.
• Campbell, J., Lo, A., and Mackinley, C., (1997), The Econometrics of Financial Markets, New Jersey: Princeton University Press.
• Cheung, Yin-Wong, (1993), Long memory in foreign exchange rates, Journal of Business and Economic Statistics, 11, 93-101.
• Cheung, Yin-Wong, Lai, K.S., and Lai, M., (1993), Are there long cycles in foreign stock returns? Journal of International Markets, Institutions and Money, 3, 33-47.
• Classens, S., 1995, “The Emergence of Equity Investment in Developing Countries,” The World Bank Economic Review, 9, 1-17.
• Cutler, D.M., Poterba, J.M., and Summers, L.H., (1990), Speculative dynamics and role of feedback traders, American Economic Review, 80, 63-68.
• Ding, Z., Granger, C.W.J., and Engle, R.F., (1993), A long memory property of stock market returns and a new model, Journal of Empirical Finance, 1, 83-106.
• Fama, E., and French, K., (1988), Permanent and temporary components of stock prices, Journal of Political Economy, 96, 246-273.
• Goetzman, W.N., (1993), Patterns of three centuries of stock market prices, Journal of Business, 66, 249-270.
• Granger, C.W.J., and Joyeux, R., (1980), An introduction to long memory time series models and fractional differencing, Journal of Time Series Analysis, 1, 15-29.
• Greene, M., and Fielitz, B., (1977), Long term dependence in common stock returns, Journal Financial Economics, 4, 339-349.
• Heiner, R.A., (1983), The origin of predictable behavior, American Economic Review, 73, 4, 560-595.
• Hiemstra, C., and Jones, J.D., (1996), Another look at long memory in common stock returns, Journal of Empirical Finance (forthcoming).
• Hosking, J.R.M., (1981), Fractional differencing, Biometrika, 68, 165-176.
• Hurst, H.E., (1951), Long-term storage capacity of reservoirs, Transactions of the American Society Civil Engineers, 116, 770-808.
• Kaen, F.R., and Rosenman, R., (1986), Predictable behavior in financial markets: Some evidence in support of Heinerʼs hypothesis, American Economic Review, 76, 212-220.
• Kurz, M., (1994), Asset prices with rational beliefs, CEPR Publication, No. 375, Stanford University.
• Lee, D.K., and Robinson, P.M., (1996), Semiparametric exploration of long memory in stock market prices, Journal of Statistical Planning and Inference, 50, 155-174.
• Lo, A.W., (1991), Long-term memory in stock market prices, Econometrica, 59, 1279-1313.
• Lo, A.W., and Mackinlay, C., (1988) Stock market prices do not follow random walks: Evidence from a simple specification test, The Review of Financial Studies, 1, 41-66.
• __________, (1999), A Non-Random Walk Down the Wall Street, Princeton University Press, New Jersey, USA.
• Mandelbrot, B.B., and Van Ness, J.W., (1968), Fractional Brownian motions, fractional Brownian noises and applications, Siam Review, 10, 422-437.
• Mills, T., (1993), Is there long memory in UK stock returns? Applied Financial Economics, 3, 303-306.
• Pagan, A., (1996), The econometrics of financial markets, Journal of Empirical Finance, 3, 15-102.
• Poterba, J., and Summers, L., (1988), Mean reversion in stock prices, Journal of Financial Economics, 22, 27-60.
• Sadique, M.S., and Silvapulle, P., (2001), Long-Term memory in stock market returns: International evidence, International Journal of Finance & Economics, 6, 59-67.
• Sadique, M.S., and Chowdhury, S.S.H., (2001) “Linear Causal Relationship between Changes in Stock Prices and Trading Volume: The Case of the DSE, University of Rajshahi Studies, Part- C, Vol. 9, 13-25.
• Taylor, S.J., (1986), Modeling Financial Time Series, New York: John Wiley & Sons Inc.
• Teverovosky, V., Taqqu, M., and Wllinger, W., 1998, A critical look at Loʼs modifiedR/Sstatistic, Journal of Statistical Planning and Inference (forthcoming).
• Aydogan, K. and Booth, G., (1988), Are there long cycles in common stock returns? Southern Economic Journal, 55, 141-149.
• Bailey, W., and Stulz, R.M., 1990, “Benefits of International Diversification: The Case of Pacific Basin Stock Markets,”Journal of Port folio Management,16,57-61.
• Baillie, R.T., (1996), Long memory process and fractional integration in econometrics, Journal of Econometrics, 73, 5-59.
• Barkoulas, J.T., and Baum, C.F., (1996), Long term dependence in stock returns, Working Paper, No. 314, Department of Economics, Boston College, USA.
• Basher, S.A., Hassan, M.K., and Islam, M., 2003, “Time Varying Volatility and Equity Returns in Bangladesh Stock Market,” Forthcoming in Applied Financial Economics.
• Beran, J., (1994), Statistics for Long Memory Processes, Monographs on Statistics and Applied Probability, 61, New York: Chapman & Hall.
• Campbell, J., Lo, A., and Mackinley, C., (1997), The Econometrics of Financial Markets, New Jersey: Princeton University Press.
• Cheung, Yin-Wong, (1993), Long memory in foreign exchange rates, Journal of Business and Economic Statistics, 11, 93-101.
• Cheung, Yin-Wong, Lai, K.S., and Lai, M., (1993), Are there long cycles in foreign stock returns? Journal of International Markets, Institutions and Money, 3, 33-47.
• Classens, S., 1995, “The Emergence of Equity Investment in Developing Countries,” The World Bank Economic Review, 9, 1-17.
• Cutler, D.M., Poterba, J.M., and Summers, L.H., (1990), Speculative dynamics and role of feedback traders, American Economic Review, 80, 63-68.
• Ding, Z., Granger, C.W.J., and Engle, R.F., (1993), A long memory property of stock market returns and a new model, Journal of Empirical Finance, 1, 83-106.
• Fama, E., and French, K., (1988), Permanent and temporary components of stock prices, Journal of Political Economy, 96, 246-273.
• Goetzman, W.N., (1993), Patterns of three centuries of stock market prices, Journal of Business, 66, 249-270.
• Granger, C.W.J., and Joyeux, R., (1980), An introduction to long memory time series models and fractional differencing, Journal of Time Series Analysis, 1, 15-29.
• Greene, M., and Fielitz, B., (1977), Long term dependence in common stock returns, Journal Financial Economics, 4, 339-349.
• Heiner, R.A., (1983), The origin of predictable behavior, American Economic Review, 73, 4, 560-595.
• Hiemstra, C., and Jones, J.D., (1996), Another look at long memory in common stock returns, Journal of Empirical Finance (forthcoming).
• Hosking, J.R.M., (1981), Fractional differencing, Biometrika, 68, 165-176.
• Hurst, H.E., (1951), Long-term storage capacity of reservoirs, Transactions of the American Society Civil Engineers, 116, 770-808.
• Kaen, F.R., and Rosenman, R., (1986), Predictable behavior in financial markets: Some evidence in support of Heinerʼs hypothesis, American Economic Review, 76, 212-220.
• Kurz, M., (1994), Asset prices with rational beliefs, CEPR Publication, No. 375, Stanford University.
• Lee, D.K., and Robinson, P.M., (1996), Semiparametric exploration of long memory in stock market prices, Journal of Statistical Planning and Inference, 50, 155-174.
• Lo, A.W., (1991), Long-term memory in stock market prices, Econometrica, 59, 1279-1313.
• Lo, A.W., and Mackinlay, C., (1988) Stock market prices do not follow random walks: Evidence from a simple specification test, The Review of Financial Studies, 1, 41-66.
• __________, (1999), A Non-Random Walk Down the Wall Street, Princeton University Press, New Jersey, USA.
• Mandelbrot, B.B., and Van Ness, J.W., (1968), Fractional Brownian motions, fractional Brownian noises and applications, Siam Review, 10, 422-437.
• Mills, T., (1993), Is there long memory in UK stock returns? Applied Financial Economics, 3, 303-306.
• Pagan, A., (1996), The econometrics of financial markets, Journal of Empirical Finance, 3, 15-102.
• Poterba, J., and Summers, L., (1988), Mean reversion in stock prices, Journal of Financial Economics, 22, 27-60.
• Sadique, M.S., and Silvapulle, P., (2001), Long-Term memory in stock market returns: International evidence, International Journal of Finance & Economics, 6, 59-67.
• Sadique, M.S., and Chowdhury, S.S.H., (2001) “Linear Causal Relationship between Changes in Stock Prices and Trading Volume: The Case of the DSE, University of Rajshahi Studies, Part- C, Vol. 9, 13-25.
• Taylor, S.J., (1986), Modeling Financial Time Series, New York: John Wiley & Sons Inc.
• Teverovosky, V., Taqqu, M., and Wllinger, W., 1998, A critical look at Loʼs modifiedR/Sstatistic, Journal of Statistical Planning and Inference (forthcoming).
How to Cite
Sadique, MD. Shibley, and Zubair Ahmed Shimon. 2007. “Long Memory in Stock Returns: Evidence from The Dhaka Stock Exchange”. Studies in Business and Economics 13 (2). https://doi.org/10.29117/sbe.2007.0035.
Section
Articles