Forecasting the Spanish Stock Market Returns with Fractional and Non-Fractional Models
Guglielmo Maria Caporale, Juncal Cunado and Luis A. Gil-Alana
DOI : 10.3844/ajebasp.2011.586.588
American Journal of Economics and Business Administration
Volume 3, Issue 4
Problem statement: The content of this note was to assess the forecasting accuracy of various models of the Spanish stock market returns. Approach: We use daily data on the IBEX 35 for the time period January 4th, 2001-March 28th, 2006 and employ both fractional and non-fractional models. Results: The results on the prediction errors for the out-of-sample forecasts indicate that the fractional models outperform the non-fractional ones. Conclusion: Standard forecasting criteria suggest that the ARFIMA (1, d, 0) model with d = -0.017 and the AR (1) coefficient equal to 0.068 is the best specification for this series. That implies that the stock market prices display a very small degree of mean reversion behavior.
© 2011 Guglielmo Maria Caporale, Juncal Cunado and Luis A. Gil-Alana. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.