Long Memory in Stock Returns: Insights from the Indian Market

Researchers have used different methods to detect the possibility of long-term dependence (long memory) in stock market returns. It is found that while the returns themselves do not exhibit any appreciable long memory, the absolute or squared returns display long memory features. In this study, three different tests, viz., rescaled range analysis, the modified rescaled range analysis and the Whittle test are used to test the presence of long memory in the Indian stock market. BSE SENSEX is used as a proxy for the Indian market. The raw, absolute and squared daily returns are used for the purpose of analysis. The Hurst coefficient H and the fractional differencing parameter d are computed for each of the three return series. The raw returns do not show any long-term dependence, but the absolute and squared returns do. These findings are in agreement with the stylized facts observed in financial time series.