Long memory in stock returns: Evidence from the Eastern European markets

This essay aims to analyze the impact of the 2020 global pandemic on the memory properties of the Eastern Europe stock markets, from the period between 1 January 2016 to 2 September 2020, the sample was divided in two subperiods: 1 January 2016 to 30 August 2019 (before Covid 19) and 2 September 201...

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Main Authors: Dias Rui, Heliodoro Paula, Alexandre Paulo, Santos Hortense, Farinha Ana
Format: Article
Language:English
Published: EDP Sciences 2021-01-01
Series:SHS Web of Conferences
Subjects:
Online Access:https://www.shs-conferences.org/articles/shsconf/pdf/2021/02/shsconf_ies2020_01029.pdf
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author Dias Rui
Heliodoro Paula
Alexandre Paulo
Santos Hortense
Farinha Ana
author_facet Dias Rui
Heliodoro Paula
Alexandre Paulo
Santos Hortense
Farinha Ana
author_sort Dias Rui
collection DOAJ
description This essay aims to analyze the impact of the 2020 global pandemic on the memory properties of the Eastern Europe stock markets, from the period between 1 January 2016 to 2 September 2020, the sample was divided in two subperiods: 1 January 2016 to 30 August 2019 (before Covid 19) and 2 September 2019 to 2 September 2020 (after Covid 19). To perform this analysis, different approaches were undertaken to analyze whether if: (i) the global pandemic (Covid-19) accentuated the exponents Detrended Fluctuation Analysis (DFA) and the Detrended Cross-Correlation Analysis (𝑝𝐷𝐶𝐶𝐴) in the Eastern European stock markets?. The daily returns do not have normal distributions, they have negative asymmetries, leptocubtic, and also exhibit conditional heteroscedasticity. The exponents Detrended Fluctuation Analysis (DFA), during the Covid-19 period, range from 0.64 to 0.75, showing significant long memories in all markets, except for the SLOVAKIA market (0.45). When we compared the 2 subperiods, we found that 41 pairs of markets have cross-correlation coefficients without trend ( λDCCA) strong (out of 45 possible), and 4 pairs of markets decreased the 𝑟ℎ𝑜𝐷𝐶𝐶𝐴 in particular the markets ESTONIA-SLOVAKIA, LITHUANIA-SLOVAKIA, HUNGARY-SLOVAKIA, POLAND-SLOVAKIA. These findings show that the assumption of the market efficiency hypothesis may be in question, since the prediction of market movement can be improved if we consider the out-of-lag movements of the other markets, enabling the occurrence of arbitrage operations and some difficulties in portfolio diversification.
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spelling doaj.art-3ae190339f204432a63992e51e1c21022022-12-21T19:01:47ZengEDP SciencesSHS Web of Conferences2261-24242021-01-01910102910.1051/shsconf/20219101029shsconf_ies2020_01029Long memory in stock returns: Evidence from the Eastern European marketsDias Rui0Heliodoro Paula1Alexandre Paulo2Santos Hortense3Farinha Ana4School of Business and Administration, Polytechnic Institute of Setúbal, Portugal and CEFAGE-UE, IIFA, University of ÉvoraSchool of Business and Administration, Polytechnic Institute of SetúbalSchool of Business and Administration, Polytechnic Institute of SetúbalSchool of Business and Administration, Polytechnic Institute of SetúbalSchool of Business and Administration, Polytechnic Institute of SetúbalThis essay aims to analyze the impact of the 2020 global pandemic on the memory properties of the Eastern Europe stock markets, from the period between 1 January 2016 to 2 September 2020, the sample was divided in two subperiods: 1 January 2016 to 30 August 2019 (before Covid 19) and 2 September 2019 to 2 September 2020 (after Covid 19). To perform this analysis, different approaches were undertaken to analyze whether if: (i) the global pandemic (Covid-19) accentuated the exponents Detrended Fluctuation Analysis (DFA) and the Detrended Cross-Correlation Analysis (𝑝𝐷𝐶𝐶𝐴) in the Eastern European stock markets?. The daily returns do not have normal distributions, they have negative asymmetries, leptocubtic, and also exhibit conditional heteroscedasticity. The exponents Detrended Fluctuation Analysis (DFA), during the Covid-19 period, range from 0.64 to 0.75, showing significant long memories in all markets, except for the SLOVAKIA market (0.45). When we compared the 2 subperiods, we found that 41 pairs of markets have cross-correlation coefficients without trend ( λDCCA) strong (out of 45 possible), and 4 pairs of markets decreased the 𝑟ℎ𝑜𝐷𝐶𝐶𝐴 in particular the markets ESTONIA-SLOVAKIA, LITHUANIA-SLOVAKIA, HUNGARY-SLOVAKIA, POLAND-SLOVAKIA. These findings show that the assumption of the market efficiency hypothesis may be in question, since the prediction of market movement can be improved if we consider the out-of-lag movements of the other markets, enabling the occurrence of arbitrage operations and some difficulties in portfolio diversification.https://www.shs-conferences.org/articles/shsconf/pdf/2021/02/shsconf_ies2020_01029.pdfeastern european marketslong memoriesarbitrationportfolio diversification
spellingShingle Dias Rui
Heliodoro Paula
Alexandre Paulo
Santos Hortense
Farinha Ana
Long memory in stock returns: Evidence from the Eastern European markets
SHS Web of Conferences
eastern european markets
long memories
arbitration
portfolio diversification
title Long memory in stock returns: Evidence from the Eastern European markets
title_full Long memory in stock returns: Evidence from the Eastern European markets
title_fullStr Long memory in stock returns: Evidence from the Eastern European markets
title_full_unstemmed Long memory in stock returns: Evidence from the Eastern European markets
title_short Long memory in stock returns: Evidence from the Eastern European markets
title_sort long memory in stock returns evidence from the eastern european markets
topic eastern european markets
long memories
arbitration
portfolio diversification
url https://www.shs-conferences.org/articles/shsconf/pdf/2021/02/shsconf_ies2020_01029.pdf
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AT alexandrepaulo longmemoryinstockreturnsevidencefromtheeasterneuropeanmarkets
AT santoshortense longmemoryinstockreturnsevidencefromtheeasterneuropeanmarkets
AT farinhaana longmemoryinstockreturnsevidencefromtheeasterneuropeanmarkets