Long-term memory in credit default swaps spreads and efficient market hypothesis-fractal market hypothesis testing: Examples from G-20 countries

This study aims to examine whether the conditions of the Efficient Market Hypothesis (EPH) and Fractal Market Hypothesis are met in the context of long memory in CDS spreads of G-20 countries. Samples with valid long-memory models among G-20 countries were examined for the period from January 4, 2010 to January 17, 2022. In the study, the time series properties of the series were determined and with the preliminary long memory tests (GPH - GSP and R/S Analysis), findings close to short memory were obtained in the samples at the return level and long memory findings were obtained at the volatility level. After the appropriate ARFIMA (ARMA) structure was determined, the dual long memory process was continued with symmetric and asymmetric long memory models. The stationarity structure was investigated and structural breaks in the variance were determined by Sanso et al., (2004)'s break in variance test and considered at the volatility level. It was observed that long memory models gave valid results in trials with CDS spreads of Argentina, Brazil, People's Republic of China, South Africa, Russia and Turkiye, which are among the G-20 countries. In symmetric and asymmetric dual long memory results, there is a feature close to long memory in Turkiye at the level of return, while no memory effect was found in Italy. In other samples, short memory and features close to short memory were found. For the conditional mean series, it was determined that the weak form efficiency was not valid in all countries. At the level of volatility, it was determined that weak-form efficiency was valid in Argentina, while long-memory feature and weak-form efficiency were not valid in other samples, and fractal market conditions were valid. It has been observed that long memory models do not give valid results in trials with the data set of other G-20 countries. The results obtained in this study can be considered as a criticism that even the weakest form of EMH is not available in the CDS market.