Long Memory and Correlation Structures of Select Stock Returns Using Novel Wavelet and Fractal Connectivity Networks

BHANDARI, AVISHEK (2020): Long Memory and Correlation Structures of Select Stock Returns Using Novel Wavelet and Fractal Connectivity Networks.

Abstract

This study investigates the long range dependence and correlation structures of some select stock markets. Using novel wavelet methods of long range dependence, we show presence of long memory in the stock returns of some emerging economies and the lack of it in developed markets of Europe and the United States. Moreover, we conduct a wavelet based fractal connectivity analysis, which is the first application in economics and financial studies, to segregate markets into fractally similar groups and find that developed markets have similar fractal structures. Similarly stock returns of emerging markets exhibiting long-memory tend to follow similar fractal structures. Furthermore, network analyses of fractal connectivity support our findings on market efficiency which has theoretical roots in both fractal and adaptive market hypothesis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Long memory, Fractal connectivity, Wavelets, Hurst, Complex networks
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; 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 > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C38 - Classification Methods ; Cluster Analysis ; Principal Components ; Factor Models; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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