Efficiency Drifts in Euronext Stock Indexes Returns

Abstract

This paper intends to assess and test long-term memory in the Euronext stock indexes returns in the search for fractal dynamics that refute the random walk hypothesis. The Hurst exponents estimated through Rescaled-Range and Detrended Fluctuation Analysis evidence long memory in the form of persistence for all markets, with the exception of CAC 40 by the DFA. However, the Rescaled-Range Tests neither reject the absence of long dependency nor reject the existence of short dependency. On the contrary, the Fractional Differencing Test supports the presence of persistence in the PSI 20, ISE 20 and OBX indexes. This suggests that these markets are more prone to predictability, but also trends that may be unexpectedly disrupted by discontinuities, exhibiting dynamics incompatible with random walk behavior and providing evidence against the weak form of efficiency and validity of the asset pricing models.