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Are the Australian and New Zealand stock prices nonlinear with a unit root?

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Paresh Kumar Narayan

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Abstract

Whether or not stock prices are characterized by a unit root has important implications for policy. For instance, by applying unit root tests one can deduce whether stock returns can be predicted from previous changes in prices. A finding of a unit root implies that stock returns cannot be predicted. This paper investigates whether or not stock prices for Australia and New Zealand can be characterized by a unit root process. An unrestricted two-regime threshold autoregressive model is used with an autoregressive unit root. Among the main results, it is found that the stock prices of both countries are nonlinear processes that are characterized by a unit root process, consistent with the efficient market hypothesis.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 18 (October)
Pages: 2161-2166
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Handle: RePEc:taf:applec:v:37:y:2005:i:18:p:2161-2166

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kausik Chaudhuri & Yangru Wu, 2000. "Random Walk versus Breaking Trend in Stock Prices: Evidence from Emerging Markets," Working Papers 2000-3, University of Sydney, Department of Economics. [Downloadable!]
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  2. Kanas, Angelos, 2001. "Neural Network Linear Forecasts for Stock Returns," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 245-54, July. [Downloadable!] (restricted)
  3. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November. [Downloadable!] (restricted)
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  4. Simon van Norden & Huntley Schaller & ), 1995. "Regime Switching in Stock Market Returns," Econometrics 9502002, EconWPA. [Downloadable!]
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  5. Abhyankar, A & Copeland, L S & Wong, W, 1997. "Uncovering Nonlinear Structure in Real-Time Stock-Market Indexes: The S&P 500, the DAX, the Nikkei 225, and the FTSE-100," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 1-14, January.
  6. Paresh Kumar Narayan & Russell Smyth, 2004. "Is South Korea's stock market efficient?," Applied Economics Letters, Taylor and Francis Journals, vol. 11(11), pages 707-710, September. [Downloadable!] (restricted)
  7. Huber, Peter, 1997. "Stock Market Returns in Thin Markets: Evidence from the Vienna Stock Exchange," Applied Financial Economics, Taylor and Francis Journals, vol. 7(5), pages 493-98, October. [Downloadable!] (restricted)
  8. Paresh Kumar Narayan & Russell Smyth, 2005. "Are OECD stock prices characterized by a random walk? Evidence from sequential trend break and panel data models," Applied Financial Economics, Taylor and Francis Journals, vol. 15(8), pages 547-556, May. [Downloadable!] (restricted)
  9. Liu, Xiaming & Song, Haiyan & Romilly, Peter, 1997. "Are Chinese Stock Markets Efficient? A Cointegration and Causality Analysis," Applied Economics Letters, Taylor and Francis Journals, vol. 4(8), pages 511-15, August. [Downloadable!] (restricted)
  10. Abhyankar, A & Copeland, L S & Wong, W, 1995. "Nonlinear Dynamics in Real-Time Equity Market Indices: Evidence from the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(431), pages 864-80, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Svetlana Maslyuk & Russell Smyth, 2007. "Non-Linear Unit Root Properties of Crude Oil Production," Monash Economics Working Papers 39/07, Monash University, Department of Economics. [Downloadable!]
    Other versions:
  2. Shyh-Wei Chen, 2008. "Non-stationarity and Non-linearity in Stock Prices: Evidence from the OECD Countries," Economics Bulletin, Economics Bulletin, vol. 3(11), pages 1-11. [Downloadable!]
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