Long-term memory in Euronext stock indexes returns: an econophysics approach

Abstract

The purpose of paper is to assess the long-term memory of stock index returns in the pan-European platform Euronext AEX,. We find evidence of time dependency in much of the data, suggesting that the series may best be described as fractional Brownian motion. Modified Rescaled-Range Analysis and Detrended Fluctuation Analysis were used to measure the degree of long memory. The global Hurst exponents evidence persistent long memory in the Dutch, Belgian and Portuguese markets. In the French market, evidence of long memory is inconsistent and weak. Fractal structure suggests non-conformity with the Efficient Market Hypothesis, and may compromise the reliability of asset pricing models. Furthermore, time-dependent Hurst exponents show evidence of weakening persistence in these markets, particularly after the international crises of 2000, 2002 and 2010. A possible explanation for those changes is that the markets may have matured over time, becoming more efficient after these severe events.

Asymmetric Wealth Effect between US Stock Markets and US Housing Market and European Stock Markets: Evidences from TAR and MTAR

“…Interestingly, the asymmetry of the US indices reveals a fatter right tail distribution, while the European indices reveal a fatter left tail. Moreover, the positive kurtosis of the DJIA and SPX indices reveals a leptokurtic manifestation, suggesting that the market is classified into a group of hedging noise traders (Gomes et al 2018) providing liquidity and a group of large speculative position takers consisting of institutional investors and wealthy interveners (Los and Yu 2008).…”

Efficiency Drifts in Euronext Stock Indexes Returns

“…The results of the rescaled-range analysis showed long-term memory properties in all indexes. Gomes et al (2018) analyzed 4 Euronext stock indices (CAC 40,AEX,BEL 20 and PSI 20) in search of long memory using the Hurst exponent estimated by the M-R/S analysis and the DFA. The estimated global 𝐻 exponents suggest persistent long memory in the Dutch, Belgian and Portuguese markets.…”

“…Researchers continue to seek for a better understanding of the dynamic nature of financial time series, with most of the evidence suggesting weak base of any form of long memory (Lo, 1991;Jacobsen, 1996;Lipka and Los, 2002;Kristoufek, 2012;Braun, Jenkinson and Stoff, 2017) and another part of the evidence suggesting clear fractal structure (Fama and French, 1988;Costa and Vasconcelos, 2003;Assaf and Cavalcante, 2004;Chen and Yu, 2005;Ferreira, 2018). However, some results presented mixed findings (Sadique and Silvapulle, 2001;Christodoulou-Volos and Siokis, 2006;Eitelman and Vitanza, 2008;Núñez, Martínez and Villareal, 2017;Gomes et al, 2018).…”