Long-term Memory in Stock Market Prices

Andrew Lo ()

No 2984, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A test for long-run memory that is robust to short-range dependence is developed. It is a simple extension of Mandelbrot's "range over standard deviation" or R/S statistic, for which the relevant asymptotic sampling theory is derived via functional central limit theory. This test is applied to daily, weekly, monthly, and annual stock returns indexes over several different time periods. Contrary to previous findings, there is no evidence of long-range dependence in any of the indexes over any sample period or sub-period once short-term autocorrelations are taken into account. Illustrative Monte Carlo experiments indicate that the modified R/S test has power against at least two specific models of long-run memory, suggesting that stochastic models of short-range dependence may adequately capture the time series behavior of stock returns.

Date: 1989-05
Note: ME
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Citations: View citations in EconPapers (18)

Published as Econometrica, Vol. 59, No. 5, pp.1279-1314, September 1991.

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Related works:
Journal Article: Long-Term Memory in Stock Market Prices (1991)
Working Paper: Long-term memory in stock market prices (1989)
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