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Abstract

This paper analyzes the efficient markets hypothesis for the major NAFTA financial indices. The results suggest that the simple return for all three indices is generally uncorrelated. The non-linear transformations of the simple return info its absolute and squared value behaved much differently however. Here, the statistics calculated provided considerable evidence to suggest that these transformations of the returns are predictable to a large degree. Ignoring the sign of the return helps greatly in predicting the direction of the series. Also, all of the series in this transformation, but one, had estimated fractional parameters that would indicate the presence of long memory. Thus, it could be concluded that volatility is a long run predictable process.

Volume

2

Issue

1

First Page

9

Last Page

19

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© Fort Hays State University

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