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Markov Chain Test for Time Dependence and Homogeneity: An Analytical and Empirical Evaluation

Author

Listed:
  • Tan, B.
  • Yilmaz, K.

Abstract

This paper presents a complete framework for testing procedure based on statistical theory of Markov chains.

Suggested Citation

  • Tan, B. & Yilmaz, K., 1999. "Markov Chain Test for Time Dependence and Homogeneity: An Analytical and Empirical Evaluation," Papers 99/03, Koc University.
    • Handle: RePEc:fth:kocuni:99/03
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    References listed on IDEAS

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    1. Myung Jig Kim & Charles R. Nelson & Richard Startz, 1991. "Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(3), pages 515-528.
    2. Diebold, Francis X. & Chen, Celia, 1996. "Testing structural stability with endogenous breakpoint A size comparison of analytic and bootstrap procedures," Journal of Econometrics, Elsevier, vol. 70(1), pages 221-241, January.
    3. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    4. McQueen, Grant & Thorley, Steven, 1991. "Are Stock Returns Predictable? A Test Using Markov Chains," Journal of Finance, American Finance Association, vol. 46(1), pages 239-263, March.
    5. Richardson, Matthew, 1993. "Temporary Components of Stock Prices: A Skeptic's View," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 199-207, April.
    6. M. F. M. Osborne, 1959. "Brownian Motion in the Stock Market," Operations Research, INFORMS, vol. 7(2), pages 145-173, April.
    7. Lo, Andrew W. & MacKinlay, A. Craig, 1989. "The size and power of the variance ratio test in finite samples : A Monte Carlo investigation," Journal of Econometrics, Elsevier, vol. 40(2), pages 203-238, February.
    8. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
    9. Dryden, Myles M, 1969. "Share Price Movements: A Markovian Approach," Journal of Finance, American Finance Association, vol. 24(1), pages 49-60, March.
    10. Fielitz, Bruce D., 1975. "On the Stationarity of Transition Probability Matrices of Common Stocks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(2), pages 327-339, June.
    11. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-328, April.
    12. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
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    Citations

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    Cited by:

    1. Altug, Sumru & Tan, Barış & Gencer, Gözde, 2012. "Cyclical dynamics of industrial production and employment: Markov chain-based estimates and tests," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1534-1550.
    2. Frank Bickenbach & Eckhardt Bode, 2003. "Evaluating the Markov Property in Studies of Economic Convergence," International Regional Science Review, , vol. 26(3), pages 363-392, July.
    3. Jurgen Essletzbichler & Kazuo Kadokawa, 2010. "The Evolution of Regional Labour Productivities in Japanese Manufacturing, 1968-2004," Regional Studies, Taylor & Francis Journals, vol. 44(9), pages 1189-1205.
    4. Bruno Damásio & João Nicolau, 2020. "Time Inhomogeneous Multivariate Markov Chains: Detecting and Testing Multiple Structural Breaks Occurring at Unknown," Working Papers REM 2020/0136, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    5. Donald Brown & Rustam Ibragimov, 2005. "Sign Tests for Dependent Observations and Bounds for Path-Dependent Options," Yale School of Management Working Papers amz2581, Yale School of Management, revised 01 Jul 2005.
    6. Pauhofová, Iveta & Želinský, Tomáš, 2017. "On the Regional Convergence of Income at District Level in Slovakia," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 65(10), pages 918-934.
    7. Julie Le Gallo & Coro Chasco, 2009. "Spatial analysis of urban growth in Spain, 1900–2001," Studies in Empirical Economics, in: Giuseppe Arbia & Badi H. Baltagi (ed.), Spatial Econometrics, pages 59-80, Springer.
    8. Donald J. Brown & Rustam Ibragimov, 2005. "Sign Tests for Dependent Observations and Bounds for Path-Dependent Options," Cowles Foundation Discussion Papers 1518, Cowles Foundation for Research in Economics, Yale University.
    9. Damásio, Bruno & Nicolau, João, 2024. "Time inhomogeneous multivariate Markov chains: Detecting and testing multiple structural breaks occurring at unknown dates," Chaos, Solitons & Fractals, Elsevier, vol. 180(C).
    10. Riccardo De Blasis, 2020. "The price leadership share: a new measure of price discovery in financial markets," Annals of Finance, Springer, vol. 16(3), pages 381-405, September.

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    More about this item

    Keywords

    TESTS ; ECONOMIC MODELS;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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