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Mean reversion and long memory in African stock market prices

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  • Emmanuel Anoruo
  • Luis Alberiko Gil-Alaña

    (Navarra Center for International Development)

Abstract

We examine the behaviour of stockmarket prices in several African countries by means of fractionally integrated techniques. In doung so, we can test for mean reversion in these markets. Our results can be summarized as follows: we cannot find evidence of mean reversion in any single market, and evidence of long memory returns (i.e.,orders of integration above 1 in the logged stock prices) is obtained in the cases of Egypt and Nigeria, and, in a lesser extent in Tunisia, Morocco and Kenya. Permittin theexistence of a s structural change, the breakdates take place in the earlier 2000s in the majority of the cases, and evidenceof mena reversio seems to have taken place in hte periods before the breaks in most of the countries. If we focus on the absolute and squared returns, evidence of long memory is obtained in Nigeria and Egypt. Thus, for these two countries, a long memory model incorporating positive fractional degrees of integration in both the level and the volatility process should be considered.

Suggested Citation

  • Emmanuel Anoruo & Luis Alberiko Gil-Alaña, 2010. "Mean reversion and long memory in African stock market prices," NCID Working Papers 01/2011, Navarra Center for International Development, University of Navarra.
  • Handle: RePEc:nva:unnvaa:wp01-2010
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    Cited by:

    1. Kuttu, Saint, 2018. "Modelling long memory in volatility in sub-Saharan African equity markets," Research in International Business and Finance, Elsevier, vol. 44(C), pages 176-185.
    2. Ngene, Geoffrey & Tah, Kenneth A. & Darrat, Ali F., 2017. "Long memory or structural breaks: Some evidence for African stock markets," Review of Financial Economics, Elsevier, vol. 34(C), pages 61-73.
    3. Donald A. Otieno & Rose W. Ngugi & Peter W. Muriu, 2019. "The impact of inflation rate on stock market returns: evidence from Kenya," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(1), pages 73-90, January.
    4. Nathaniel Gbenro & Richard Kouamé Moussa, 2019. "Asymmetric Mean Reversion in Low Liquid Markets: Evidence from BRVM," Post-Print hal-02059799, HAL.
    5. Todd Moss and Ross Thuotte, 2013. "Nowhere Left to Hide? Stock Market Correlation, Regional Diversification, and the Case for Investing in Africa," Working Papers 316, Center for Global Development.
    6. Donald A. Otieno & Rose W. Ngugi & Nelson H. W. Wawire, 2017. "Effects of Interest Rate on Stock Market Returns in Kenya," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(8), pages 40-50, August.
    7. Nathaniel Gbenro & Richard Kouamé Moussa, 2019. "Asymmetric Mean Reversion in Low Liquid Markets: Evidence from BRVM," JRFM, MDPI, vol. 12(1), pages 1-19, March.
    8. Geoffrey Ngene & Kenneth A. Tah & Ali F. Darrat, 2017. "Long memory or structural breaks: Some evidence for African stock markets," Review of Financial Economics, John Wiley & Sons, vol. 34(1), pages 61-73, September.
    9. Sugimoto, Kimiko & Matsuki, Takashi & Yoshida, Yushi, 2014. "The global financial crisis: An analysis of the spillover effects on African stock markets," Emerging Markets Review, Elsevier, vol. 21(C), pages 201-233.
    10. Adeabah, David & Abakah, Emmanuel Joel Aikins & Tiwari, Aviral Kumar & Hammoudeh, Shawkat, 2023. "How far have we come and where should we go after 30+ years of research on Africa's emerging financial markets? A systematic review and a bibliometric network analysis," Emerging Markets Review, Elsevier, vol. 55(C).
    11. Héctor F. Salazar-Núñez & Francisco Venegas-Martínez & Cuauhtémoc Calderón-Villareal, 2017. "¿Existe memoria larga en mercados bursátiles, o depende del modelo, periodo o frecuencia? (Is there Long Memory in Stock Markets, or Does it Depend on the Model, Period or Frequency?)," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 1-24, May.
    12. Al-Shboul, Mohammad & Anwar, Sajid, 2016. "Fractional integration in daily stock market indices at Jordan's Amman stock exchange," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 16-37.
    13. Ezzat, Hassan, 2013. "Long Memory Processes and Structural Breaks in Stock Returns and Volatility: Evidence from the Egyptian Exchange," MPRA Paper 51465, University Library of Munich, Germany.

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    More about this item

    Keywords

    long memory; fraction integration; stock market returns;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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