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Behaviour of stock markets' memories

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  • Shapour Mohammadi
  • Ahmad Pouyanfar

Abstract

In this article, we show that the memory of markets has nonchaotic behaviour. Its time trend is neutral and nonlinearity tests such as Brock, Dechert, Sheinkman (BDS) rejects nonlinearity in stock markets' memories. The estimation of fractional differencing parameters is carried out by various methods such as Maximum Likelihood Estimation (MLE), Nonlinear Least Squares (NLS), Hurst exponents, Gewek, Porter- Hudak (GPH), wavelet transformation, and Whittle. Also Lyapunov exponents are estimated by two methods of Rosenstein and Jacobian. Results of Lyapunov exponent estimation shows memory of markets are not chaotic. Furthermore, there are no any Autoregressive Conditional Heteroscedasticity (ARCH) effects in memory of markets. ARCH test is more specific than the BDS test and it may powerful test for detecting possible ARCH effects. All of tests show memory of markets has random behaviour.

Suggested Citation

  • Shapour Mohammadi & Ahmad Pouyanfar, 2011. "Behaviour of stock markets' memories," Applied Financial Economics, Taylor & Francis Journals, vol. 21(3), pages 183-194.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:3:p:183-194
    DOI: 10.1080/09603107.2010.524620
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    Cited by:

    1. Tiwari, Aviral Kumar & Gupta, Rangan, 2019. "Chaos in G7 stock markets using over one century of data: A note," Research in International Business and Finance, Elsevier, vol. 47(C), pages 304-310.
    2. Tiwari, Aviral Kumar & Gupta, Rangan, 2019. "Reprint of: Chaos in G7 stock markets using over one century of data: A note," Research in International Business and Finance, Elsevier, vol. 49(C), pages 315-321.
    3. Yong Kheng Goh & Haslifah M Hasim & Chris G Antonopoulos, 2018. "Inference of financial networks using the normalised mutual information rate," PLOS ONE, Public Library of Science, vol. 13(2), pages 1-21, February.
    4. Claudiu Tiberiu Albulescu & Aviral Kumar Tiwari & Phouphet Kyophilavong, 2021. "Nonlinearities and Chaos: A New Analysis of CEE Stock Markets," Mathematics, MDPI, vol. 9(7), pages 1-13, March.

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