ISSN: 1648 - 4460

International Journal of Scholarly Papers


Transformations  in
Business & Economics

Transformations in
Business & Economics

  • © Vilnius University, 2002-2013
  • © Brno University of Technology, 2002-2013
  • © University of Latvia, 2002-2013
Kuriame Lietuvos ateitį
Long-Range Dependence in the Returns of Three Central and Eastern European Stock Markets – A Time-Varying Analysis
Silvo Dajcman, Alenka Kavkler, Mejra Festic

ABSTRACT. In this paper, we will examine whether the return series of Central and Eastern European (namely: Slovenian, Hungarian and Czech) stock markets exhibit long range dependence. For this purpose, the return series of representative national stock indices are modelled as ARFIMA processes and then tested via the Kwiatkowski-Phillips-Schmidt-Shin (KPSS) (1992) test, the Geweke and Porter-Hudak (GPH) test, and the wavelet ordinary least squares method (WOLS) of Jensen (1999). To study the stability of fractional integration parameters of return time series and whether the financial crises in the period from 1998-2010 had an effect on the fractal structure of a return series, the time-varying estimates of a long range dependence are calculated with a rolling window approach. The main findings of this paper can be summarized as: i) the Slovenian aggregated stock market returns (i.e. the returns of the stock market index) exhibit long memory, while the Czech and Hungarian stock market returns are stationary; ii) based on the results of long memory tests, the weak-form efficiency hypothesis is rejected for the Slovenian stock market, but not for the Hungarian and Czech stock market; iii) Estimates of a fractal structure for the investigated stock market return series are not stable, but vary with time; iv) We find that the Hungarian and Czech stock market returns exhibit a similar fractal structure, whereas the fractal structure of Slovenian stock market returns is more idiosyncratic and more volatile; v) No evidence of a systematic effect of the major financial crises during the period from 1998-2010 on the fractal structure of stock market returns was found.

KEYWORDS: stock market, long memory, efficient market hypothesis.

JEL classification: G14, G15.

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Scholarly papers Transformations in Business & Economics
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