Testing for the Existence of a Generalized Wiener Process- the Case of Stock Prices
AbstractIn this article, we present two nonparametric trispectrum based tests for testing the hypothesis that an observed time series was generated by what we call a generalized Wiener process (GWP). Assuming the existence of a Weiner process for asset rates of return is critical to the Black-Scholes model and its extension by Merton (BSM). The Hinich trispectrum-based test of linearity and the trispectrum extension of the Hinich-Rothman bispectrum test for time reversibility are used to test the validity of BSM. We apply the tests to a selection of high frequency NYSE and Australian (ASX) stocks.
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Bibliographic InfoPaper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 408.
Date of creation: 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-11 (All new papers)
- NEP-ECM-2010-06-11 (Econometrics)
- NEP-ETS-2010-06-11 (Econometric Time Series)
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- Andrew W. Lo & A. Craig MacKinlay, 1989.
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NBER Working Papers
2168, National Bureau of Economic Research, Inc.
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