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Structural Breaks and Testing for the Random Walk Hypothesis in International Stock Prices

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  • Chancharat, Surachai
  • Valadkhani, Abbas

Abstract

This paper examines whether stock prices for 16 countries are trend stationary or follow a random walk process using the (Zivot and Andrews, 1992) and (Lumsdaine and Papell, 1997) tests and monthly data (1987:12-2005:12). With one structural break, the ZA test results provide evidence in favour of random walk hypothesis in 14 countries. However, when two endogenously-determined structural breaks are considered, this hypothesis was rejected for only five countries, suggesting a robust conclusion regarding the non-stationarity of stock prices world wide. In addition, the dates of structural break in most cases point to the Asian crisis in the period 1996-1998.

Suggested Citation

  • Chancharat, Surachai & Valadkhani, Abbas, 2007. "Structural Breaks and Testing for the Random Walk Hypothesis in International Stock Prices," MPRA Paper 50394, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:50394
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    References listed on IDEAS

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    Cited by:

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    3. Ali, Sajid & Shahzad, Syed Jawad Hussain & Raza, Naveed & Al-Yahyaee, Khamis Hamed, 2018. "Stock market efficiency: A comparative analysis of Islamic and conventional stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 139-153.
    4. Hiremath, Gourishankar S & Bandi, Kamaiah, 2010. "Do stock returns in India exhibit a mean reverting tendency? Evidence from multiple structural breaks test," MPRA Paper 46502, University Library of Munich, Germany.

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    More about this item

    Keywords

    stock market; random walk; structural break;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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