Long-term memory and reset effect on Latin American equity returns

Authors

  • Christian Espinosa Universidad Santo Tomás

Abstract

This article confirms the long term dependence of returns for stock market indexes in Chile, Argentina, Brazil and Mexico. By means of the rescaled range statistic (R/S) proposed by Hurst (1951) and studied later by Mandelbrot and Wallis (1969) and Mandelbrot (1972, 1975), and the modified rescaled range statistic (Lo, 1991), in general the existence of long run memory is confirmed. Nevertheless, when the sample is divided into two periods (pre and post Asian crisis) evidence of a reset effect is found, such that the series under study maintain their statistical properties but they lose memory.

Keywords:

Hurst coefficient, modified rescaled range analysis, BDS test