Long memory in the volatility of an emerging equity market: The case of Turkey

We use methods based on wavelets and aggregate series, which have gained growing acceptance in the finance literature, to test for long memory in the absolute value, squared, and log squared daily returns of the Istanbul Stock Exchange National 100 Index. Our results show that all three volatility series are characterized by long memory, indicating that shocks to the stock index volatility decay slowly and that distant observations of the series are associated with each other. There are several implications of our study for further research. First, models examining the volatility of the Turkish equity returns should include a long memory component in their parameter set. Second, tests should be conducted to assess whether such models result in an improvement in the volatility forecasts of the Turkish equity returns.