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Testing for the martingale hypothesis in Asian stock prices: evidence from a new joint variance ratio test

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  • Jae H. Kim

Abstract

This paper tests for the martingale (or random walk) hypothesis in the stock prices of a group of Asian countries. The selected countries represent well-developed markets (Hong Kong and Japan) as well as emerging markets (Korea, Taiwan and Thailand). This paper adopts a new joint variance ratio test which is a finite sample test based on the wild bootstrap method. It is different from the conventional variance ratio tests in that its sampling distribution is approximated by a resampling method, which has been found to exhibit better small sample properties than the asymptotic method. The test for the martingale hypothesis is conducted with moving-subsample windows, to control the sensitivity of the results to the particular sample periods. Overall, it is found that the stock prices of Japan, Korea, and Hong Kong are found to follow the martingale, indicating that their stock markets have been efficient.

Suggested Citation

  • 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.
    • Handle: RePEc:ecm:ausm04:98
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    References listed on IDEAS

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    6. Yilmaz, Kamil, 2003. "Martingale Property of Exchange Rates and Central Bank Interventions," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 383-395, July.
    7. Hyun-Jung Ryoo & Graham Smith, 2002. "Korean stock prices under price limits: variance ratio tests of random walks," Applied Financial Economics, Taylor & Francis Journals, vol. 12(8), pages 545-553.
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    Cited by:

    1. 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.
    2. Annina Kaltenbrunner & Machiko Nissanke, 2009. "The Case for an Intermediate Exchange Rate Regime with Endogenizing Market Structures and Capital Mobility: The Empirical Study of Brazil," WIDER Working Paper Series RP2009-29, World Institute for Development Economic Research (UNU-WIDER).
    3. Mohsen Mehrara & Nafiseh Behradmehr & Mitra Saboonchi, 2013. "Investigating the Long time Memory in the Future Market of Gold," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 1(1), pages 28-32.

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    More about this item

    Keywords

    Martingale hypothesis; Stock Market Efficiency; Variance Ratio Test; Wild bootstrap;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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