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Do Asia-Pacific stock prices follow a random walk? A regime-switching perspective

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  • Xin Shen
  • Mark J. Holmes

Abstract

This article tests for stock market efficiency among 12 Asia-Pacific countries. A novel approach is applied where unit-root tests of real stock prices are embedded within a Markov regime-switching framework. Although standard univariate unit-root tests provide little support for stock price mean reversion, we find that each country is characterized by two stationary regimes with different speeds of adjustment. Further analysis suggests that the recent global financial crisis is associated with a shift in regimes, where the aftermath of the crisis is more likely associated with a faster speed of mean-reversion.

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  • Xin Shen & Mark J. Holmes, 2014. "Do Asia-Pacific stock prices follow a random walk? A regime-switching perspective," Applied Economics Letters, Taylor & Francis Journals, vol. 21(3), pages 189-195, February.
    • Handle: RePEc:taf:apeclt:v:21:y:2014:i:3:p:189-195
    DOI: 10.1080/13504851.2013.848016
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    Cited by:

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    3. Oscar V. De la Torre-Torres & Evaristo Galeana-Figueroa & José Álvarez-García, 2019. "A Test of Using Markov-Switching GARCH Models in Oil and Natural Gas Trading," Energies, MDPI, vol. 13(1), pages 1-24, December.
    4. Qishui Chi & Jieyi Huo, 2017. "An Empirical Study on the Stock Price Volatility of Small and Medium Enterprise Board in China," Research in World Economy, Research in World Economy, Sciedu Press, vol. 8(2), pages 12-24, December.

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