Open AccessArticle
Policy Impact on the Chinese Stock Market: From the 1994 Bailout Policies to the 2015 Shanghai-Hong Kong Stock Connect
Int. J. Financial Stud. 2017, 5(1), 4; doi:10.3390/ijfs5010004 -
Abstract
From the 1994 bailout policies to the 2015 Shanghai-Hong Kong Stock Connect, the policy impact on the Chinese stock market has changed over time. By May 2015, global investors can directly invest in a more legalized and normalized Chinese stock market, whereas they
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From the 1994 bailout policies to the 2015 Shanghai-Hong Kong Stock Connect, the policy impact on the Chinese stock market has changed over time. By May 2015, global investors can directly invest in a more legalized and normalized Chinese stock market, whereas they are still concerned about the policy-oriented market and its attendant risks. In this study, we employ the family of GARCH models to investigate the structural changes in risks with the implementation of a series of policies. Our results show that although many policies improve or stabilize the stock market, certain policies lead to substantial volatility. Among them, macro-control policies and transaction cost adjustments are a double-edged sword, which should be used with caution. Furthermore, with opening-up policies being launched recently, the Chinese stock market has entered a new stage in which it affects international capital markets. However, the increased risks, which may result in a sharp turnaround, cause worry. Full article
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Open AccessEditorial
Acknowledgement to Reviewers of the International Journal of Financial Studies in 2016
Int. J. Financial Stud. 2017, 5(1), 3; doi:10.3390/ijfs5010003 -
Abstract The editors of the International Journal of Financial Studies would like to express their sincere gratitude to the following reviewers for assessing manuscripts in 2016.[...] Full article
Open AccessArticle
Effectiveness of Weather Derivatives as a Risk Management Tool in Food Retail: The Case of Croatia
Int. J. Financial Stud. 2017, 5(1), 2; doi:10.3390/ijfs5010002 -
Abstract
Non-catastrophic weather risk is gaining importance as climate change becomes more pronounced and economic crisis forces companies to strengthen their cost control. Recent literature proposes weather derivatives as flexible weather risk mitigating tools. Only a handful of studies analysed the feasibility of weather
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Non-catastrophic weather risk is gaining importance as climate change becomes more pronounced and economic crisis forces companies to strengthen their cost control. Recent literature proposes weather derivatives as flexible weather risk mitigating tools. Only a handful of studies analysed the feasibility of weather derivatives in industries other than agriculture and energy. The purpose of this paper is to review available weather risk management solutions in retail, present weather derivatives as non-catastrophic weather risk management tools, empirically demonstrate the process of designing weather derivatives and assess their effectiveness as risk mitigating tools in retail. Empirical analysis is performed on beverage sales in 60 large food stores in Croatia, and performance of monthly temperature put options during the summer season is examined. For weather sensitivity analysis of sales, the method of panel regression was used. Results show that weather has a statistically significant effect on beverage sales and that weather derivatives prove to be effective in beverage sales uncertainty reduction. Their effectiveness differs between covered periods and cities. Full article
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Open AccessArticle
New Insight into the Finance-Energy Nexus: Disaggregated Evidence from Turkish Sectors
Int. J. Financial Stud. 2017, 5(1), 1; doi:10.3390/ijfs5010001 -
Abstract
Seeing that reshaped energy economics literature has adopted some new variables in energy demand function, the number of papers looking into the relationship between financial development and energy consumption at the aggregate level has been increasing over the last few years. This paper,
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Seeing that reshaped energy economics literature has adopted some new variables in energy demand function, the number of papers looking into the relationship between financial development and energy consumption at the aggregate level has been increasing over the last few years. This paper, however, proposes a new framework using disaggregated data and investigates the nexus between financial development and sectoral energy consumption in Turkey. To this end, panel time series regression and causality techniques are adopted over the period 1989–2011. Empirical results confirm that financial development does have a significant impact on energy consumption, even with disaggregated data. It is also proved that the magnitude of financial development is larger in energy-intensive industries than in less energy-intensive ones. Full article
Open AccessArticle
Sectoral Differences in the Choice of the Time Horizon during Estimation of the Unconditional Stock Beta
Int. J. Financial Stud. 2016, 4(4), 25; doi:10.3390/ijfs4040025 -
Abstract
The stock beta coefficient literature extensively discusses the proper methods for the estimation of beta as well as its use in asset valuation. However, there are fewer references with respect to the appropriate time horizon that investors should utilize when evaluating the risk-return
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The stock beta coefficient literature extensively discusses the proper methods for the estimation of beta as well as its use in asset valuation. However, there are fewer references with respect to the appropriate time horizon that investors should utilize when evaluating the risk-return relationship of a stock. We examine the appropriate time horizon for beta estimation, differentiating our results by sector according to the Industry Classification Benchmark. We employ data from the NYSE and estimate varying lengths of beta employing data from 30 to 250 trading days. The constructed beta series is then examined for the presence of breaks using the endogenous structural break literature. Results show evidence against the use of betas that employ more than 90 trading days of data provisional to the sector under study. Full article
Open AccessArticle
Model Selection Test for the Heavy-Tailed Distributions under Censored Samples with Application in Financial Data
Int. J. Financial Stud. 2016, 4(4), 24; doi:10.3390/ijfs4040024 -
Abstract
Numerous heavy-tailed distributions are used for modeling financial data and in problems related to the modeling of economics processes. These distributions have higher peaks and heavier tails than normal distributions. Moreover, in some situations, we cannot observe complete information about the data. Employing
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Numerous heavy-tailed distributions are used for modeling financial data and in problems related to the modeling of economics processes. These distributions have higher peaks and heavier tails than normal distributions. Moreover, in some situations, we cannot observe complete information about the data. Employing the efficient estimation method and then choosing the best model in this situation are very important. Thus, the purpose of this article is to propose a new interval for comparing the two heavy-tailed candidate models and examine its suitability in the financial data under complete and censored samples. This interval is equivalent to encapsulating the results of many hypotheses tests. A maximum likelihood estimator (MLE) is used for evaluating the parameters of the proposed heavy-tailed distribution. A real dataset representing the top 30 companies of the Tehran Stock Exchange indices is used to illustrate the derived results. Full article
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Open AccessArticle
Strategic Decision-Making and Social Skills: Integrating Behavioral Economics and Social Cognition Research
Int. J. Financial Stud. 2016, 4(4), 22; doi:10.3390/ijfs4040022 -
Abstract
Strategic decisions are affected by beliefs about the expectations of others and their possible decisions. Thus, strategic decisions are influenced by the social context and by beliefs about other actors’ levels of sophistication. The present study investigated whether strategic decision-making, as measured by
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Strategic decisions are affected by beliefs about the expectations of others and their possible decisions. Thus, strategic decisions are influenced by the social context and by beliefs about other actors’ levels of sophistication. The present study investigated whether strategic decision-making, as measured by the beauty contest game, is associated with social skills, as measured by the Autism Quotient (AQ). In line with our hypothesis, we found that social skills were positively related to successful strategic decision-making. Furthermore, results showed a curvilinear relationship between steps of reasoning in the beauty contest game and social skills, indicating that very high as well as very low scoring individuals on the social skills subscale of the AQ engaged in high-levels of strategic thinking. Full article
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Open AccessArticle
Oil Prices, Credit Risks in Banking Systems, and Macro-Financial Linkages across GCC Oil Exporters
Int. J. Financial Stud. 2016, 4(4), 23; doi:10.3390/ijfs4040023 -
Abstract
This paper assesses the effect of the recent 2014–2015 oil price slump on the financial stability in the Gulf Cooperation Council (GCC) region. The first objective of this paper is to assess how oil price shock propagates within the macroeconomy and how the
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This paper assesses the effect of the recent 2014–2015 oil price slump on the financial stability in the Gulf Cooperation Council (GCC) region. The first objective of this paper is to assess how oil price shock propagates within the macroeconomy and how the macro shocks transmit to GCC banks’ balance sheets. This part of the paper implements a System Generalized Method of Moments (GMM) and a Panel Fixed Effect Model to estimate the response of nonperforming loans (NPLs) to its macroeconomic determinants. The second objective of this paper is to assess any negative feedback effects between the GCC banking systems and the economy. The paper, therefore, implements a Panel VAR model to explore the macro-financial linkages between GCC banking systems and the real economy. The results indicate that oil price, non-oil GDP, interest rate, stock prices, and housing prices are major determinants of NPLs across GCC banks and the overall financial stability in the region. Credit risk shock tends to propagate disturbances to non-oil GDP, credit growth, and stock prices across GCC economies. A higher level of NPLs restricts banks’ credit growth and can dampen economic growth in these economies. The results support the notion that disturbances in banking systems lead to unwanted economic consequences for the real sector. Full article
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Open AccessArticle
The Valuation of Equities and the GDP Growth Effect: A Global Empirical Study
Int. J. Financial Stud. 2016, 4(4), 21; doi:10.3390/ijfs4040021 -
Abstract
One of the main characteristics of the (recently proposed) non-arbitrage valuation of equities framework is the reduction in pricing subjectivity. This is evidenced in terms of the dividends discount rate and the outlook of future performance (dividends projection) of the company that is
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One of the main characteristics of the (recently proposed) non-arbitrage valuation of equities framework is the reduction in pricing subjectivity. This is evidenced in terms of the dividends discount rate and the outlook of future performance (dividends projection) of the company that is being valued. Under this framework, as in the case of derivatives pricing, the discount rate is the risk-free interest rate (not the cost of equity), and the subjectively-determined drift of the stochastic process that drives the operating profits of the company is eliminated. The challenge that emerges is that the structure of the new drift of the operating profits process is undetermined under the methodology (this is a similar feature that is observed in the case of derivatives related to non-tradable assets). This paper proposes that the structure of this new drift is represented by the (country-specific) GDP nominal growth effect. This proposition is tested through an empirical study that involves several companies of 10 equity indices worldwide, for two different periods (1995–2004 and 2005–2014). The results of the test are reasonably successful, meaning that further research related to the framework could provide useful information for the understanding of financial assets and their links to the macro-economy. Full article
Open AccessReview
Operational Risk Management in Financial Institutions: A Literature Review
Int. J. Financial Stud. 2016, 4(4), 20; doi:10.3390/ijfs4040020 -
Abstract
Following the three-pillar structure of the Basel II/III framework, the article categorises and surveys 279 academic papers on operational risk in financial institutions, covering the period from 1998 to 2014. In doing so, different lines of both theoretical and empirical directions for research
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Following the three-pillar structure of the Basel II/III framework, the article categorises and surveys 279 academic papers on operational risk in financial institutions, covering the period from 1998 to 2014. In doing so, different lines of both theoretical and empirical directions for research are identified. In addition, this study provides an overview of existing consortia databases and other publicly available sources on operational loss that may be incorporated into empirical research, as well as in risk measurement processes by financial institutions. Finally, this paper highlights the research gaps in operational risk and outlines recommendations for further research. Full article
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Open AccessArticle
The Effect of Straight-Line and Accelerated Depreciation Rules on Risky Investment Decisions—An Experimental Study
Int. J. Financial Stud. 2016, 4(4), 19; doi:10.3390/ijfs4040019 -
Abstract
The aim of this study is to analyze how depreciation rules influence the decision behavior of investors. For this purpose, we conduct a laboratory experiment in which participants decide on the composition of an asset portfolio in different choice situations. Using an experimental
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The aim of this study is to analyze how depreciation rules influence the decision behavior of investors. For this purpose, we conduct a laboratory experiment in which participants decide on the composition of an asset portfolio in different choice situations. Using an experimental setting with different payment periods, we show that accelerated compared to straight-line depreciation can increase the willingness to invest as hypothesized by theory. However, this expected behavior is only observed in a more complex environment (with a subsidy) and not in a less complex environment (without a subsidy). Full article
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Open AccessArticle
Stock Selection as a Problem in Phylogenetics—Evidence from the ASX
Int. J. Financial Stud. 2016, 4(4), 18; doi:10.3390/ijfs4040018 -
Abstract
We report the results of fifteen sets of portfolio selection simulations using stocks in the ASX200 index for the period May 2000 to December 2013. We investigated five portfolio selection methods, random selection, selection within industrial groups, and three based on neighbor-Net phylogenetic
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We report the results of fifteen sets of portfolio selection simulations using stocks in the ASX200 index for the period May 2000 to December 2013. We investigated five portfolio selection methods, random selection, selection within industrial groups, and three based on neighbor-Net phylogenetic networks. We report that using random, industrial groups, or neighbor-Net phylogenetic networks alone rarely produced statistically significant reduction in risk, though in four out of the five cases in which it did so, the portfolios selected using the phylogenetic networks had the lowest risk. However, we report that when using the neighbor-Net phylogenetic networks in combination with industry group selection that substantial reductions in portfolio return spread were achieved. Full article
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Open AccessArticle
Spatially-Aggregated Temperature Derivatives: Agricultural Risk Management in China
Int. J. Financial Stud. 2016, 4(3), 17; doi:10.3390/ijfs4030017 -
Abstract
In this paper, a new form of weather derivative contract, namely the climatic zone-based growth degree-day (GDD) contract, is introduced. The objective is to increase the risk management efficiency in the agricultural sector of China and to reduce the model dimension of multi-regional
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In this paper, a new form of weather derivative contract, namely the climatic zone-based growth degree-day (GDD) contract, is introduced. The objective is to increase the risk management efficiency in the agricultural sector of China and to reduce the model dimension of multi-regional temperature-based weather derivatives pricing. Since the proposed contract serves as a risk management tool for all of the cities in the same climatic zone, we compare the risk hedging power between the climatic zone-based and the city-based GDD contracts. As a result, we find that the differences between the two types of temperature-based weather contracts are maintained within a certain range. Full article
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Open AccessArticle
Capital Regulation and Bank Risk-Taking Behavior: Evidence from Pakistan
Int. J. Financial Stud. 2016, 4(3), 16; doi:10.3390/ijfs4030016 -
Abstract
In response to the global financial crisis of 2007–2009, risk-based capital requirements have been reinforced in the new Basel III Accord to counter excessive bank risk-taking behavior. However, prior theoretical as well as empirical literature that studies the impact of risk-based capital requirements
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In response to the global financial crisis of 2007–2009, risk-based capital requirements have been reinforced in the new Basel III Accord to counter excessive bank risk-taking behavior. However, prior theoretical as well as empirical literature that studies the impact of risk-based capital requirements on bank risk-taking behavior is inconclusive. The primary purpose of this paper is to examine the impact of risk-based capital requirements on bank risk-taking behavior, using a panel dataset of 21 listed commercial banks of Pakistan over the period 2005–2012. Purely regulatory measures of bank capital, capital adequacy ratio, and bank assets portfolio risk, risk-weighted assets to total assets ratio, are used for the main analysis. Recently developed small N panel methods (bias corrected least squares dummy variable (LSDVC) method and system GMM method with instruments collapse option) are used to control for panel fixed effects, dynamic dependent variables, and endogenous independent variables. Overall, the results suggest that commercial banks have reduced assets portfolio risk in response to stringent risk-based capital requirements. Results also confirm that all banks having risk-based capital ratios either lower or higher than the regulatory required limits, have decreased portfolio risk in response to stringent risk-based capital requirements. The results are robust to alternative proxies of bank risk-taking, alternative estimation methods, and alternative samples. Full article
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Open AccessArticle
Back to the Future Betas: Empirical Asset Pricing of US and Southeast Asian Markets
Int. J. Financial Stud. 2016, 4(3), 15; doi:10.3390/ijfs4030015 -
Abstract
The study adds an empirical outlook on the predicting power of using data from the future to predict future returns. The crux of the traditional Capital Asset Pricing Model (CAPM) methodology is using historical data in the calculation of the beta coefficient. This
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The study adds an empirical outlook on the predicting power of using data from the future to predict future returns. The crux of the traditional Capital Asset Pricing Model (CAPM) methodology is using historical data in the calculation of the beta coefficient. This study instead uses a battery of Generalized Auto Regressive Conditional Heteroskedasticity (GARCH) models, of differing lag and parameter terms, to forecast the variance of the market used in the denominator of the beta formula. The covariance of the portfolio and market returns are assumed to remain constant in the time-varying beta calculations. The data spans from 3 January 2005 to 29 December 2014. One ten-year, two five-year, and three three-year sample periods were used, for robustness, with ten different portfolios. Out of sample forecasts, mean absolute error (MAE) and mean squared forecast error (MSE) were used to compare the forecasting ability of the ex-ante GARCH models, Artificial Neural Network, and the standard market ex-post model. Find that the time-varying MGARCH and SGARCH beta performed better with out-of-sample testing than the other ex-ante models. Although the simplest approach, constant ex-post beta, performed as well or better within this empirical study. Full article
Open AccessArticle
Impacts of Credit Default Swaps on Volatility of the Exchange Rate in Turkey: The Case of Euro
Int. J. Financial Stud. 2016, 4(3), 14; doi:10.3390/ijfs4030014 -
Abstract
In this study, we aim to investigate the impacts of credit default swaps (CDS) premium as a risk financial indicator on the fluctuations of value of the Turkish lira against the Euro. We try to answer the following questions: Is the CDS premium
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In this study, we aim to investigate the impacts of credit default swaps (CDS) premium as a risk financial indicator on the fluctuations of value of the Turkish lira against the Euro. We try to answer the following questions: Is the CDS premium change among the drivers of EUR/TL exchange rate and what are the possible effects of CDS premium volatility on EUR/TL exchange rate stability in different conditions? In this regard, we developed a MS-VAR regime change model and asymmetric, frequency domain and rolling windows causality analysis methods. Results obtained from all tests imply that risk premium is partially a driver of the EUR/TL exchange rate between the years 2009 and 2015. Full article
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Open AccessArticle
Determination of Systemically Important Companies with Cross-Shareholding Network Analysis: A Case Study from an Emerging Market
Int. J. Financial Stud. 2016, 4(3), 13; doi:10.3390/ijfs4030013 -
Abstract
Systemic risk events constitute an important issue in current financial systems. A leading course of action used to mitigate such events is identification of systemically important agents in order to implement the prudential policies in a financial system. In this paper, a bi-level
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Systemic risk events constitute an important issue in current financial systems. A leading course of action used to mitigate such events is identification of systemically important agents in order to implement the prudential policies in a financial system. In this paper, a bi-level cross-shareholding network of the stock market is considered according to direct and integrated ownership structure. Furthermore, different systemic risk indices are applied to identify systemically important companies in an early warning system. Results of application of these indices on cross-shareholding data from Tehran Stock Exchange show that integrated network indices produce more reliable results. Moreover, results of statistical analysis of the networks indicated the existence of scale-free characteristics in the TSE cross-shareholding network. Full article
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Open AccessArticle
Europe’s Elite Football: Financial Growth, Sporting Success, Transfer Investment, and Private Majority Investors
Int. J. Financial Stud. 2016, 4(2), 12; doi:10.3390/ijfs4020012 -
Abstract
Europe’s elite football clubs are a small group of about 30 clubs mostly originating from the Big Five leagues in England, Italy, Spain, Germany, and France. These clubs top Deloitte’s Football Money League ranking Europe’s top football clubs by revenues. They also win
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Europe’s elite football clubs are a small group of about 30 clubs mostly originating from the Big Five leagues in England, Italy, Spain, Germany, and France. These clubs top Deloitte’s Football Money League ranking Europe’s top football clubs by revenues. They also win the vast majority of national and European football competitions, and account for the major share of FIFA World Cup appearances. Nevertheless, empirical analyses studying the antecedents of financial success of this peculiar sample are rare. This paper extends previous research by building an empirical model of financial performance and applying it to a unique, high-quality dataset of the top 30 EU football clubs by club revenues analyzed over ten consecutive seasons from 2004 to 2013. Fixed effects models are performed to account for time trends and club fixed effects. The results show that financial success is driven by national and international sporting success, as well as brand value; sporting success is driven by team investments, and team investments tend to be driven by (foreign) private majority investors. Full article
Open AccessArticle
Does Bilateral Market and Financial Integration Explains International Co-Movement Patterns1
Int. J. Financial Stud. 2016, 4(2), 10; doi:10.3390/ijfs4020010 -
Abstract
This study aims to explore the relationship between market integration, foreign portfolio equity holding and inflation rates on international stock market linkages between Pakistan and India. To measure stock equity interlinkage, we constructed international co-movement index through rolling beta estimation. Market integration variable
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This study aims to explore the relationship between market integration, foreign portfolio equity holding and inflation rates on international stock market linkages between Pakistan and India. To measure stock equity interlinkage, we constructed international co-movement index through rolling beta estimation. Market integration variable between these two countries is constructed using the International Capital Asset Pricing Model (ICAPM). To check the impact of market integration, foreign portfolio equity holding and inflation rate on Pakistan-Indian stock market co-movement, we applied autoregressive distributed lag (ARDL) estimation. ARDL estimation is applied due to different stationarity levels of the included variables. The level of convergence speed is measured by the introduction of error correction term (ECT) followed by variance decomposition analysis. Results of the study indicated presence of long term relationship among the included variables along with significance variance in bilateral co-movement due to inflation rate differential. The significance of inflation rate differences between these two countries are in accordance with portfolio balance theory stating that investors possess information about the macroeconomic variables thereby readjusting their portfolios for effective diversification. Full article
Open AccessArticle
Performance of the Multifractal Model of Asset Returns (MMAR): Evidence from Emerging Stock Markets
Int. J. Financial Stud. 2016, 4(2), 11; doi:10.3390/ijfs4020011 -
Abstract
In this study, the performance of the Multifractal Model of Asset Returns (MMAR) was examined for stock index returns of four emerging markets. The MMAR, which takes into account stylized facts of financial time series, such as long memory, fat tails and trading
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In this study, the performance of the Multifractal Model of Asset Returns (MMAR) was examined for stock index returns of four emerging markets. The MMAR, which takes into account stylized facts of financial time series, such as long memory, fat tails and trading time, was developed as an alternative to the ARCH family models. Empirical analysis of the study consists of two sections. In the first section, we estimated the parameters of GARCH, EGARCH, FIGARCH, MRS-GARCH and MMAR for the stock index returns of Croatia, Greece, Poland and Turkey. In the second section, 1000 paths were obtained for each model using Monte Carlo simulations. We then compared the scaling function values of simulated and original time series for different q orders (1–5). According to the obtained results, the MMAR is mostly superior to other models and presents the best replica of the original time series. Another important finding is the achievement of the MRS-GARCH. We found that for lower levels of persistency (long memory) of return series, the performance of the MRS-GARCH excels, and for H = 0.5, it narrowly outperforms the MMAR. Full article