Long Memory of the Indian Stock Market

Ashutosh Verma

The IUP Journal of Financial Economics, 2008, vol. VI, issue 3, 74-83

Abstract: The weak form of efficient market hypothesis states that the share prices neither have a long memory nor a short memory. Long memory is characterized by non-periodic dependence in a financial time series over a long span of time. This paper examines the long memory of the Indian stock market by examining the daily returns of 60 companies with around 62% of the total market capitalization over a period of five years. The test applied to examine the long memory is Lo’s modified rescaled long range (R/S) test, which is able to derive variance of the time series with a consistent estimate. This test is an improvement over the classical rescaled long range test and is not sensitive to short-term dependence. The results of the study indicate that the returns of only three companies exhibit long-range dependence. The computed test statistics for all other companies were found to be insignificant and showed the absence of long memory, supporting the weak form efficiency of the market.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjfe:v:06:y:2008:i:3:p:74-83

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