Long Range Dependence in the Indian Stock Market: Evidence of Fractional Integration, Non-Linearities and Breaks

Luis Gil-Alana and Trilochan Tripathy ()
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Trilochan Tripathy: XLRI-Xavier School of Management

Journal of Quantitative Economics, 2016, vol. 14, issue 2, No 3, 199-215

Abstract: Abstract This paper deals with the analysis of the Indian stock market prices using long range dependence techniques. In particular, we employ a variety of fractionally integrated models, which are very general in the sense that it allows us to incorporate structural breaks and non-linear structures. Our results indicate that the series corresponding to the NSE index is nonstationary and highly persistent, with an order of integration close to or above 1. The volatility, measured in terms of the squared returns indicates that the series is long memory, with an order of integration in the interval (0, 0.5). The results finally support the existence of a mean shift in the data at about January 2008, with the order of integration being around 1. Thus the Efficient Market Hypothesis (EMH) may be satisfied in the Indian stock market once a break is taken into account. However, the existence of short run dynamics suggests a degree of predictability in its behaviour.

Keywords: Stock market; Efficiency; Long memory; India (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s40953-016-0029-4

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