Long Memory And Stock Returns Of Chinese Stock Market

After the concept of long memory was proposed,the study of long memory became a research hotspot and attracted great attention in various subject including the financial field.Although the research on long memory of the stock market is not rare in China,most of the literature only studies long memory on a time series perspective.In view of the limitations of existing research,this paper analyzes the long memory characteristics of Chinese stock market and conducts a deeper analysis from a cross-sectional view.Based on the estimation method named GPH model,this paper uses Chinese stock data dating from 2000 to 2019 to calculate the time-varying long memory parameter in Chinese stock market,then proves that there is a significant long memory phenomenon in Chinese stock market.Further more,this paper explores the factors that affect the long memory parameter of individual stock.We find that the memory estimate of stock volatility has a positive correlation with the company’s market value and book-tomarket ratio,has a negative correlation with the momentum.That is,value stocks and stocks with large size,worse piror performance exhibit higher memory parameters.Finally,by portfolio sorting and Fama-Macbeth regression,we can find that there is a significant negative correlation between the memory estimates and expected returns.According to the calculation in this article,the average annual return of anti-persistent stocks is 5.32%higher than that of long memory stocks.The main reason for this phenomenon is that stocks with long memory characteristics will show stronger predictability,and the uncertainty of their future volatility will be smaller,so the risk premium based on uncertainty will be lower.This paper also provides empirical support for this interpretation.This paper links the long memory level of stock volatility with the expected return of stocks,and considers long memory into the research of asset pricing.This is the first attempt in Chinese stock market.The conclusions of this article are of great significance for us to have a comprehensive understanding of Chinese financial market.