Forecasting the Spanish Stock Market Returns with Fractional and Non-Fractional Models

Guglielmo Maria Caporale, Juncal Cunado and Luis Gil-Alana

American Journal of Economics and Business Administration, 2011, vol. 3, issue 4, 586-588

Abstract: Problem statement: The content of this note was to assess the forecasting accuracy of various models of the Spanish stock market returns. Approach: We use daily data on the IBEX 35 for the time period January 4th, 2001-March 28th, 2006 and employ both fractional and non-fractional models. Results: The results on the prediction errors for the out-of-sample forecasts indicate that the fractional models outperform the non-fractional ones. Conclusion: Standard forecasting criteria suggest that the ARFIMA (1, d, 0) model with d = -0.017 and the AR (1) coefficient equal to 0.068 is the best specification for this series. That implies that the stock market prices display a very small degree of mean reversion behavior.

Keywords: Fractional integration; stock market returns (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:abk:jajeba:ajebasp.2011.586.588

DOI: 10.3844/ajebasp.2011.586.588

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