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On The Asymptotic Power Of The Variance Ratio Test

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  • Deo, Rohit S.
  • Richardson, Matthew

Abstract

The variance-ratio (VR) test statistic, which is based on k-period differences of the data, is commonly used in empirical finance and economics to test the random walk hypothesis. We obtain the asymptotic power function of the VR test statistic when the differencing period k is increasing with the sample size n such that k n 0. We show that the test is inconsistent against a variety of mean-reverting alternatives, confirm the result in simulations, and then characterize the functional form of the asymptotic power in terms of and these alternatives.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Econometric Theory.

Volume (Year): 19 (2003)
Issue (Month): 02 (April)
Pages: 231-239

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Handle: RePEc:cup:etheor:v:19:y:2003:i:02:p:231-239_19

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Cited by:
  1. Amélie Charles & Olivier Darne, 2009. "The random walk hypothesis for Chinese stock markets: Evidence from variance ratio tests," Post-Print hal-00771080, HAL.
  2. Chen, Willa W. & Deo, Rohit S., 2006. "The Variance Ratio Statistic At Large Horizons," Econometric Theory, Cambridge University Press, vol. 22(02), pages 206-234, April.
  3. Hoque, Hafiz A.A.B. & Kim, Jae H. & Pyun, Chong Soo, 2007. "A comparison of variance ratio tests of random walk: A case of Asian emerging stock markets," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 488-502.
  4. Masao Ogaki & Sungwook Park, 2007. "Long-run real exchange rate changes and the properties of the variance of k-differences," Working Papers 07-05, Ohio State University, Department of Economics.
  5. Amélie Charles & Olivier Darne, 2009. "The efficiency of the crude oil markets: Evidence from variance ratio tests," Post-Print hal-00771081, HAL.
  6. Amélie Charles & Olivier Darne, 2009. "Variance ratio tests of random walk: An overview," Post-Print hal-00771078, HAL.
  7. Montagnoli, Alberto & de Vries, Frans P., 2010. "Carbon trading thickness and market efficiency," Energy Economics, Elsevier, vol. 32(6), pages 1331-1336, November.
  8. Shyh-wei Chen, 2009. "Random walks in asian foreign exchange markets:evidence from new multiple variance ratio tests," Economics Bulletin, AccessEcon, vol. 29(2), pages 1296-1307.
  9. Amelie Charles & Olivier Darne, 2009. "Testing for Random Walk Behavior in Euro Exchange Rates," Economie Internationale, CEPII research center, issue 119, pages 25-45.
  10. Sasikumar, Anoop, 2011. "Testing for weak form market efficiency in Indian foreign exchange market," MPRA Paper 37071, University Library of Munich, Germany.
  11. Hiremath, Gourishankar S & Bandi, Kamaiah, 2012. "Variance ratios, structural breaks and nonrandom walk behaviour in the Indian stock returns," MPRA Paper 48710, University Library of Munich, Germany.
  12. Deo, Rohit S. & Chen, Willa W., 2003. "The Variance Ratio Statistic at Large Horizons," Papers 2004,04, Humboldt-Universität Berlin, Center for Applied Statistics and Economics (CASE).
  13. Simone Bianco & Roberto Ren\'o, 2006. "Unexpected volatility and intraday serial correlation," Papers physics/0610023, arXiv.org.

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