Analysis on Runs of Daily Returns in Istanbul Stock Exchange

Şensoy, Ahmet (2012): Analysis on Runs of Daily Returns in Istanbul Stock Exchange.

Abstract

The aim of this paper is to obtain some statistical properties about runs of daily returns of ISE30, ISE50 and ISE100 indices and compare these results with the empirical stylized facts of developed stock markets. In this manner, all time historical daily closing values of these indices are studied and the following observations are obtained; exponential law fits pretty well for the distribution of both run length and magnitude of run returns. Market is equally likely to go up or go down everyday. Market depth has improved over recent years. Large magnitudes of run returns are more likely to be seen in positive runs. As in the developed stock markets, daily returns in Istanbul Stock Exchange don’t have significant autocorrelations but absolute values (i.e. magnitudes) of daily returns exhibit strong and slowly decaying autocorrelations up to several weeks suggesting volatility clustering. Similar to the absolute daily returns, absolute value of run returns display strong and slowly decaying autocorrelations which again supporting the existence of volatility clustering. Unlike magnitudes of run returns, lenghts of runs don’t have significant autocorrelations.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stylized Facts; Return Runs; Autocorrelation; Volatility Clustering; Stock Market Efficiency
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C20 - General; C - Mathematical and Quantitative Methods > C0 - General > C00 - General

References

Abergel F., A. Chakraborti, I.M. Tokea, M. Patriarca, “Econophysics: Empirical Facts and agent based models”; arXiv: 0909.1974, 2009

Blok H.J., “On the Nature of Stock Markets: Simulations and Experiments”, Ph.D. Thesis, The University of British Columbia, 2000

Bollerslev T., R.C. Chou, K.F. Kroner, “ARCH modelling in finance”, J. Econometrics 52, 1992, pp. 5–59

Bouchaud J. P., R. Cont, M. Potters, “Scaling in stock market data: stable laws and beyond” , published in “Scale Invariance and Beyond” (Proceedings of the CNRS Workshop on Scale Invariance, Les Houches, 1997) edp Dubrulle, Graner and Sornette, Springer, Berlin, 1997

Bouchaud J.P., M. Potters, “Theory of Financial Risk and Derivative Pricing: From Statistical Physics to Risk Management”, Cambridge University Press, Cambridge, 2003.

Comte F., E. Renault, “Long memory continuous time models”, J. Econometrics 73, 1996, pp. 101–150

Cont R., “Statistical Finance: empirical and theoretical approaches to the statistical modelling of price variations in speculative markets”, Ph.D. Thesis, Universit´e de Paris XI, 1998

Cont R., “Emprical Properties of Asset Returns: Stylized Facts and Statistical Issues”, Quant. Finance 1, Institute of Physics Publishing, 2001, pp. 223-226

Cont R., “Long Memory in Economics”, Springer Berlin Heidelberg, Heidelberg, 2007, (Ch. Volatility clustering in financial markets: empirical facts and agent based models, pp. 289-309)

Ding Z.X., R.F. Engle, C.W.J Granger, “A long memory property of stock market returns and a new model”, J. Empirical Finance 1, 1983, pp. 83-106

Ding Z.X., C.W.J. Granger, “Stylized facts on the temporal distributional properties of daily data from speculative markets”, University of California, San Diego, Working Paper, 1994

Easley D., N. Kiefer, M. O’Hara, “One Day in the Life of a Very Common Stock”, The Review of Financial Studies 10(3), 1997, pp. 805-835

Engle R.F., “ARCH: Selected Readings , Oxford University Press, Oxford, 1995

Engle R.F., A.J. Patton, “What good is a volatility model?”, Quant. Finance 1, 2001, pp. 237-245

Fama E.F., “The Behavior of Stock Market Prices”, Journal of Business 38(1), 1965, pp. 34-105

Fama E.F., “Efficient capital markets: a review of theory and empirical work”, J. Finance 25 , 1971, pp. 383–417

Fama E.F., “Efficient capital markets: II”, J. Finance 46, 1991, pp. 1575–1617

Gao Y., Li H., Statistical distribution and time correlation of stock returns runs , Physica A 377, 2006, pp. 193-198

Grafton R.G.T, “The runs-up and runs-down tests”, Applied Statistics 30(1), 1981, pp. 81-85

Mandelbrot B., “The variation of certain speculative prices” J. Business XXXVI, 1963, pp. 392–417

Mantegna R.N., H.E. Stanley, “Introduction to Econophysics: Correlations and Complexity in Finance”, Cambridge Univetsity Press, Cambridge, 2000

Marumo K., T. Ohira, N. Sazuka, T. Shimizu, M. Takayasu, H. Takayasu, Predictability of Currency Market Exchange , Physica A 308, 2002, pp. 368-373

Pagan A., “The econometrics of financial markets”, J. Empirical Finance 3, 1996, pp. 15–102

Taqqu M., W. Willinger, V. Teverovsky, “Long range dependence and stock returns, Finance and Stochastics 3, 1999, pp. 1–13