Much ado about nothing: Long-term memory in Pacific Rim equity markets

Using classical and modified rescaled range analyses (R/S analysis), this study examined the equity markets of Japan, Australia, Hong Kong, Singapore, Korea, and Taiwan. Using the classical rescaled-range method of analysis, we documented the presence of a long-range nonlinear deterministic structure in the returns of the Japanese, Singaporean, Korean, and Taiwanese indices, ranging from 3 to 4 years in duration. However, after correcting for short-range dependence using Lo's (1991) modified R/S analysis technique, all evidence of long-term memory disappeared. The absence of long-range dependence is consistent with market efficiency, and these findings call into question patterns in other asset streams documented using the classical method of rescaled range analysis. These findings also raise the general specter of significant sensitivity of empirical findings to the choice of method of analysis.