Ozun, Alper and Cifter, Atilla (2007): Modeling LongTerm Memory Effect in Stock Prices: A Comparative Analysis with GPH Test and Daubechies Wavelets.

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Abstract
Longterm memory effect in stock prices might be captured, if any, with alternative models. Though Geweke and PorterHudak (1983) test model the long memory with the OLS estimator, a new approach based on wavelets analysis provide WOLS estimator for the memory effect. This article examines the longterm memory of the Istanbul Stock Index with the Daubechies20, Daubechies12, the Daubechies4 and the Haar wavelets and compares the results of the WOLS estimators with that of OLS estimator based on the Geweke and PorterHudak test. While the results of the GPH test imply that the stock returns are memoryless, fractional integration parameters based on the Daubechies wavelets display that there is an explicit longmemory effect in the stock returns. The research results have both methodological and practical crucial conclusions. On the theoretical side, the wavelet based OLS estimator is superior in modeling the behaviours of the stock returns in emerging markets where nonlinearities and high volatility exist due to their chaotic natures. For practical aims, on the other hand, the results show that the Istanbul Stock Exchange is not in the weakform efficient because the prices have memories that are not reflected in the prices, yet.
Item Type:  MPRA Paper 

Institution:  Marmara University 
Original Title:  Modeling LongTerm Memory Effect in Stock Prices: A Comparative Analysis with GPH Test and Daubechies Wavelets 
Language:  English 
Keywords:  Longterm memory; Wavelets; Stock prices; GPH test 
Subjects:  C  Mathematical and Quantitative Methods > C4  Econometric and Statistical Methods: Special Topics > C45  Neural Networks and Related Topics G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing; Trading volume; Bond Interest Rates 
Item ID:  2481 
Depositing User:  Atilla Cifter 
Date Deposited:  02. Apr 2007 
Last Modified:  12. Feb 2013 16:03 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/2481 