Dual long memory property in returns and volatility: The evidence from Turkish stock market

This study investigates the dual long memory property in the returns and volatility of the Turkish stock market indices, by using the ARFIMA-FIGARCH model. Moreover, we examine the volatility behaviour and persistence in the Istanbul Stock Exchange to provide new and additional evidence on the impact of sudden changes on the persistence in volatility.The results indicate that ISE100, ISEIND, and ISEFIN indices have long memory in return and in volatility simultaneously. Volatility persistency of all indices except ISEIND is overestimated when break dates are ignored. Thus, researchers studying on volatility should consider the volatility breaks. More importantly, volatility shifts may be the source of long memory in ISE100 and ISEFIN indices.Double long memory property found in Istanbul Stock Exchange contradicts the weak form market efficiency. Thus future prices can be forecastable, which leads the possibility of speculative gains. In an inefficient market, information handling process regarding past prices along with firm specific and macroeconomic information, such as merger plan announcements, inflation, or unemployment, make it possible to gain abnormal returns. Moreover, techniques using past prices to forecast futures prices, such as technical analysis and charting, may be useful to forecast futures prices. techniques using financial information to search under priced stocks, such as fundamental analysis enable to gain abnormal returns in an inefficient markets, such as Istanbul stock exchange because not only prices are forecastable but also information flow have long run impact on volatility.Keywords: Dual Long Memory, Volatility, ARFIMA-FIGARCH, Efficient Market Hypothesis, ISE