Abstract

This paper tests for long memory in the yield changes and volatility of Kenya’s benchmark 10-year government bond, in order to evaluate the informational efficiency of the local currency market. Using the ARFIMA-FIGARCH model the statistical properties of yield changes and volatility are simultaneously estimated. Evidence of long memory in both yield changes and volatility are conclusively demonstrated. This finding suggests a pattern of time-dependence in the data, which stands against the efficient market hypothesis. In addition, the existence of long memory in the data is valid for all sample periods, suggesting that the recent bond markets reforms have not wholly produced the expected efficiency gains.

Keywords: bonds, Long Memory, AFRIMA, ARFIMA-FIGARCH