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Testing of nonstationary cycles in financial time series data

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Author Info
F. DePenya
L. Gil-Alana ()

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Abstract

In this article we propose a method for testing nonstationary cycles in financial time series data. We use a procedure that permits us to test unit root cycles in raw time series. The test has several distinguishing features compared with other procedures. In particular, it has a standard null limit distribution and is the most efficient test when directed against the appropriate (fractional) alternatives. In addition, it allows us to test unit root cycles at each of the frequencies, and, thus, it permits us to approximate the number of periods per cycle. The results, based on the daily structure of Spanish Stock Market prices (IBEX35), show that some intra-year cycles occur, and they take place at approximately 6, 9 or between 24 and 50 periods. The analysis was extended to several other stock market indices of various countries and though the results differ in terms of frequencies, the same conclusions hold, finding evidence of intra-year cyclical effects in all countries. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11156-006-8542-8
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Publisher Info
Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

Volume (Year): 27 (2006)
Issue (Month): 1 (August)
Pages: 47-65
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Handle: RePEc:kap:rqfnac:v:27:y:2006:i:1:p:47-65

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Web page: http://springerlink.metapress.com/link.asp?id=102990

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Related research
Keywords: Efficient market hypothesis; Unit root cycles; Autocorrelation; Nonstationarity;

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