An analysis of long memory properties in Asia Pacific stock markets

Abstract

This paper examines the long memory properties for the Asia Pacific stock markets. This task is particularly important for the Asian Pacific financial markets, because many would believe that the recent Asian financial crisis has a long run effect on the market's perception of volatility. The modified R/S statistic of Lo (1991) and the robust semiparametric method of Lobato and Robinson (1997) are applied to investigate the long memory properties in return and volatility of Asian financial markets. For the return series, we find little evidence of long memory, while the empirical results support the hypothesis of long memory in volatility and trading volume, in terms of turnover, for Asia-Pacific stock markets While the application of long memory volatility model in option pricing is discussed, we analyze the possible causes of spurious long memory effect in asset volatility, namely aggregation, size distortion of statistical tests and structure shifts.