Long Memory and Structural Breaks: An Application to the Tehran Stock Exchange Index (TEPIX) Returns

The aim of this study is to investigate the long memory properties along with structural breaks in the returns of the TEPIX. For this purpose, the properties of the long memory in the daily returns for three periods leading to September 23, 2013 were evaluated using semi- and non-parametric methods. The results show the existence of long memory properties in all periods which may be misleading due to the ignorance of possible structural breaks. Therefore, this paper considers the properties of long memory in the presence of structural breaks using the Bai and Perron test (1998, 2003). In order to examine the null hypothesis of long memory against the alternative of a structural break, we employ the Shimotsu test (2006). In contrast to past findings, we find that the long memory properties of TEPIX are sensitive to the period of analysis. The results suggest that one should be careful about the inference of long memory in the presence of structural breaks or regime changes.