Fractional integration in daily stock market indices at Jordan's Amman stock exchange

• The possibility of fractional integration in ASE sectoral returns is considered.
• All sectoral returns considered were found to exhibit short memory behavior.
• Structural breaks can account for long memory in returns volatility measures.
• Shocks to sectoral returns exhibit short run persistence.
• Shocks to returns volatility measures display long run persistence.

Using daily data on five sectoral indices from 2006 to 2014, this paper aims to investigate the possibility of fractional integration in sectoral returns (and their volatility measures) at Jordan's Amman stock exchange (ASE). Empirical analysis, using the log-periodogram (LP) and local whittle (LW) based semi-parametric fractional differencing techniques suggest that all sectoral returns at ASE exhibit short memory. However, in the case of volatility measures, we found evidence of long memory. Following the recent literature that argues that structural breaks in a time series could also explain the presence of long memory, we tested the volatility measures for the presence of structural breaks. We found that long memory in some volatility measures could be attributed to the presence of structural breaks. Furthermore, using impulse response functions (IRF) based on ARFIMA, we found that shocks to sectoral returns at ASE exhibit short run persistence, whereas shocks to volatility measures display long run persistence.