Mean reversion and long memory in African stock ma

Authors: Emmanuel Anoruo Luis A GilAlana

Publish Date: 2010/04/01

Volume: 35, Issue: 3, Pages: 296-308

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Abstract

We examine the behavior of stock market prices in several African countries by means of fractionally integrated techniques In doing so we can test for mean reversion in these markets Our results can be summarized as follows we cannot find evidence of mean reversion in any single market and evidence of long memory returns ie orders of integration above 1 in the logged stock prices is obtained in the cases of Egypt and Nigeria and in a lesser extent in Tunisia Morocco and Kenya Permitting the existence of a structural change the break dates take place in the earlier 2000s in the majority of the cases and evidence of mean reversion seems to have taken place in the periods before the breaks in most of the countries If we focus on the absolute and squared returns evidence of long memory is obtained in Nigeria and Egypt Thus for these two countries a long memory model incorporating positive fractional degrees of integration in both the level and the volatility process should be consideredThe secondnamed author gratefully acknowledges financial support from the Ministerio de Ciencia y Tecnologia ECO200803035 ECON Y FINANZAS Spain and a PIUNA project from the University of Navarra Comments of an anonymous referee are gratefully acknowledged This paper belongs to a group of papers that will be discussed at the Navarra Center for International Development NCID at the University of Navarra

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