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Korean stock prices under price limits: variance ratio tests of random walks

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  • Hyun-Jung Ryoo
  • Graham Smith
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    Abstract

    This paper provides tests of the random walk hypothesis for the Korean stock market over the period from March 1988 to December 1998. During this time there are five regimes of daily price limits. We use a sample of 55 actively traded stocks selected to cover a wide range of industries and with a marked number of limit moves and test the random walk hypothesis under each price limit regime. The system of price limits prevents equity prices from following a random walk process and so results in the market being inefficient. As the daily price limits are increased, the proportion of stock prices following a random walk increases. That is, the stock market as a whole approaches a random walk as price limits are relaxed.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 12 (2002)
    Issue (Month): 8 ()
    Pages: 545-553

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    Handle: RePEc:taf:apfiec:v:12:y:2002:i:8:p:545-553

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    Cited by:
    1. Jae H. Kim, 2004. "Testing for the martingale hypothesis in Asian stock prices: evidence from a new joint variance ratio test," Econometric Society 2004 Australasian Meetings 98, Econometric Society.
    2. Hiremath, Gourishankar S & Bandi, Kamaiah, 2009. "On the random walk characteristics of stock returns in India," MPRA Paper 46499, University Library of Munich, Germany.
    3. Kian-Ping Lim & Venus Khim-Sen Liew & Hock-Tsen Wong, 2003. "Weak-form Efficient Market Hypothesis, Behavioural Finance and Episodic Transient Dependencies: The Case of the Kuala Lumpur Stock Exchange," Finance, EconWPA 0312012, EconWPA.
    4. Andrew C. Worthington & Helen Higgs, 2003. "Weak-form market efficiency in European emerging and developed stock markets," School of Economics and Finance Discussion Papers and Working Papers Series, School of Economics and Finance, Queensland University of Technology 159, School of Economics and Finance, Queensland University of Technology.
    5. Kim, Jae H. & Shamsuddin, Abul, 2008. "Are Asian stock markets efficient? Evidence from new multiple variance ratio tests," Journal of Empirical Finance, Elsevier, Elsevier, vol. 15(3), pages 518-532, June.
    6. Felix Schindler, 2013. "Predictability and Persistence of the Price Movements of the S&P/Case-Shiller House Price Indices," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 46(1), pages 44-90, January.
    7. Amira Akl Ahmed, 2014. "Evolving and relative efficiency of MENA stock markets: evidence from rolling joint variance ratio tests," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 91-126, May.
    8. Comerton-Forde, Carole & Rydge, James, 2006. "The current state of Asia-Pacific stock exchanges: A critical review of market design," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 14(1), pages 1-32, January.
    9. Carl B.McGowan, Jr. & Susan E. Moeller, 2009. "A Model for Making Foreign Direct Investment Decisions Using Real Variables for Political and Economic Risk Analysis," Managing Global Transitions, University of Primorska, Faculty of Management Koper, University of Primorska, Faculty of Management Koper, vol. 7(1), pages 27-44.
    10. Hiremath, Gourishankar S & Bandi, Kamaiah, 2010. "Some Further Evidence on the Behaviour of Stock Returns in India," MPRA Paper 48518, University Library of Munich, Germany.
    11. Farag, Hisham, 2013. "Price limit bands, asymmetric volatility and stock market anomalies: Evidence from emerging markets," Global Finance Journal, Elsevier, vol. 24(1), pages 85-97.
    12. Felix Schindler, 2014. "Persistence and Predictability in UK House Price Movements," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 48(1), pages 132-163, January.
    13. 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, Elsevier, vol. 16(4), pages 488-502.

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