Long Memory Processes and Structural Breaks in Stock Returns and Volatility: Evidence from the Egyptian Exchange

Ezzat, Hassan (2013): Long Memory Processes and Structural Breaks in Stock Returns and Volatility: Evidence from the Egyptian Exchange. Published in: International Research Journal of Finance and Economics No. 113 (August 2013): pp. 136-146.

Abstract

This research investigates the presence of structural breaks in the indices of the Egyptian stock market using the Bai-Perron strcutural breaks test. The indices used are the EGX 30, the EGX 70, the EGX 100, and the EGX 20. The presence of long memory is then investigated using the GPH test and the modified GPH test by Andrews and Guggenberger for the full sample and the identified break periods for each index. Finally, an EGARCH model is estimated for the full sample and each break period. Structural breaks were identified triggered by the subprime crisis and the world financial crisis for three indices. Structural breaks triggered by events of the Egyptian revolution were accurately identified for one index. For the daily returns of the EGX 30, EGX 70, and the EGX 100 long memory is found to be spurious while for the EGX 20 long memory in returns is more apparent. For volatility, real long memory is present in the EGX 30, the EGX 70, and the EGX 20, while spurious long memory is present in the EGX 100 because of the presence of periods exhibiting strong anti-persistence. The EGARCH parameters for the full sample were found to be significantly different from the specifications for the break periods for each index. It is concluded that structural breaks are clearly present in the indices of the Egyptian stock market and have considerable impact on the dynamics of daily returns and volatility.

• Item Type: MPRA Paper
• Language: English
• Keywords: The Egyptian exchange, long memory, GPH, structural breaks, EGARCH.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

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