Empirical evidence of long-range correlations in stock returns

A major issue in nancial economics is the behaviour of stock returns over long horizons. This study provides empirical evidence of the long-range behaviour of various speculative returns. Using di erent techniques such as R=S and modi ed R=S analysis, detrended uctuation analysis (DFA), fractional di erencing test (GPH) and ARFIMA maximum likelihood estimation, we nd little evidence of long memory in returns themselves, by strong evidence of persistence in volatility measured as squared returns or absolute returns. These results allow us to conclude that any stock market model should show no temporal dependence in returns and long-range correlation in conditional volatility. c © 2000 Elsevier Science B.V. All rights reserved.