Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Sep, 1991, Volume 59, Issue 5

Long-Term Memory in Stock Market Prices<1279:LMISMP>2.0.CO;2-8
p. 1279-1313

ndrew W. Lo

A test for long-run memory that is robust to short-range dependence is developed. It is an extension of the "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 and monthly stock returns indexes over several time periods and, 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-range dependence is 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.

Log In To View Full Content