Properties of Long Memory in Return innovations from Emerging Agricultural Markets

International Journal of Research and Innovation in Applied Science (IJRIAS) | Volume VI, Issue IV, April 2021|ISSN 2454-6194

Properties of Long Memory in Return Innovations from Emerging Agricultural Markets

Deebom Zorle Dum, Etuk Ette Harrison and Nwikorga Legborsi Wisdom
Rivers state University, Port Harcourt, Nigeria

ABSTRACT
The study investigates properties of Long Memory in return innovations from emerging agricultural markets. The aim of the study is to determine the presence of long memory properties in emerging agricultural markets return innovations using; Hurst-Classical Mandelbrot’s R/S statistics, Lo’s statistics, and semi-parametric GPH statistics. The data used in the analysis include three Agricultural market indices: wheat, sorghum and rice. The data were extracted from: https://www.indexmundi.com/agriculture/ spanning from September, 1990 to 30th August, 2020, making a total of 1080 data points used in the study. From the results of the findings, it was confirmed that the study was in line with the Taylor effect as the values of the estimated difference (d) parameters of the absolute returns are greater than those of the squared returns except in the case of M=T0.08 (0.195(0.004)) which is greater than that of the square returns on price with estimated difference (d) of M=T0.08 (0.189(0.006)). From all indications there was no presence of long-term memory in the continuous market returns, indicating that the emerging agricultural market returns follow a random walking process. Furthermore, in the continuous return series of the indices, the absence of long memory did not show any evidence against the weak form of market efficiency in the returns on price in the emerging agricultural market. The lack of long memory in this case simply implies that agricultural produce from these markets were not systematically over-valued or under-valued, justifying the inactive investment in the agricultural sector (index). In this case, investors can expect a normal rate of return (risk-adjusted) while agriculturists should expect to receive a fair value for the products they sell.

Keyword: Long Memory, Return, Innovations, Emerging, Agricultural Markets

INTRODUCTION

1.1 Background to the Study

In recent years, extreme fluctuations and high price spikes for agricultural commodities have led to higher volatility, competing for market participation among investors and speculators not to achieve maximum returns on their investments. Sequel to the above, policy makers have also (recently) redirected their attention to agricultural commodity markets to tackle issues such as regulating competing market participation among investors, excessive speculative interest, price instability in the financial market, and a lack of convergence between the futures markets and the cash markets. The development and management of proper hedging

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