Predicting BRICS Stock Returns Using ARFIMA Models

This paper examines the existence of long memory in daily stock market returns from Brazil, Russia, India, China, and South Africa (BRICS) countries and also attempts to shed light on the efficacy of Autoregressive Fractionally Integrated Moving Average (ARFIMA) models in predicting stock returns. We present evidence which suggests that ARFIMA models estimated using a variety of estimation procedures yield better forecasting results than the non-ARFIMA (AR, MA, ARMA and GARCH) models with regard to prediction of stock returns. These findings hold consistently the different countries whose economies differ in size, nature and sophistication.