Using a wavelet-based maximum likelihood fractional integration estimator, we test long memory (return predictability) in the returns at the market, industry and firm level. In an analysis of emerging market daily returns over the full sample period, we find that long-memory is not present and in approximately twenty percent of 175 stocks there is evidence of long memory. The absence of long memory in the market returns may be a consequence of contemporaneous aggregation of stock returns. However, when the analysis is carried out with rolling windows evidence of long memory is observed in certain time frames. These results are largely consistent with that of detrended fluctuation analysis. A test of firm-level information in explaining stock return predictability using a logistic regression model reveal that returns of large firms are more likely to possess long memory feature than in the returns of small firms. There is no evidence to suggest that turnover, earnings per share, book-to-market ratio, systematic risk and abnormal return with respect to the market model is associated with return predictability. However, degree of long-range dependence appears to be associated positively with earnings per share, systematic risk and abnormal return and negatively with book-to-market ratio.
|Pages (from-to)||2330 - 2341|
|Number of pages||12|
|Journal||Physica A: Statistical Mechanics and its Applications|
|Publication status||Published - 2012|