Research Article Open Access

Forecasting the Spanish Stock Market Returns with Fractional and Non-Fractional Models

Guglielmo Maria Caporale1, Juncal Cunado2 and Luis A. Gil-Alana2
  • 1 Brunel University, United Kingdom
  • 2 University of Navarra, Spain

Abstract

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.

American Journal of Economics and Business Administration
Volume 3 No. 4, 2011, 586-588

DOI: https://doi.org/10.3844/ajebasp.2011.586.588

Submitted On: 13 March 2009 Published On: 8 December 2011

How to Cite: Caporale, G. M., Cunado, J. & Gil-Alana, L. A. (2011). Forecasting the Spanish Stock Market Returns with Fractional and Non-Fractional Models. American Journal of Economics and Business Administration, 3(4), 586-588. https://doi.org/10.3844/ajebasp.2011.586.588

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Keywords

  • Fractional integration
  • stock market returns