In this article we test the random walk hypothesis in the Spanish daily stock market prices by means of using fractionally integrated techniques. We use a version of the tests of Robinson (1994) that permit us to test I(d) statistical models. The results show that though fractional degrees of integration are plausible in some cases, the confidence intervals are generally narrow, including the unit root in all cases. Therefore, there is very little evidence of fractional integration, despite the length of the series, implying that the standard practice of taking first differences when modelling stock prices is adequate. In addition, the tests cannot reject that the underlying I(0) disturbances are white noise, supporting thus the (weakly) efficient market hypothesis in the Spanish stock market.
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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number
02/02.
Length: 20 pages pages Date of creation: Apr 2002 Date of revision: Publication status: Published, European Review of Economics and Finance, 2004, vol. 3(1):pp. 3-13 Handle: RePEc:una:unccee:wp0202
Find related papers by JEL classification: C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
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