IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

On Testing the Random-Walk Hypothesis: A Model-Comparison Approach

  • Darrat, Ali F
  • Zhong, Maosen
Registered author(s):

    The main intention of this paper is to investigate, with new daily data, whether prices in the two Chinese stock exchanges (Shanghai and Shenzhen) follow a random-walk process as required by market efficiency. We use two different approaches, the standard variance-ratio test of Lo and MacKinlay (1988) and a model-comparison test that compares the ex post forecasts from a NAIVE model with those obtained from several alternative models: ARIMA, GARCH and the Artificial Neural Network (ANN). To evaluate ex post forecasts, we utilize several procedures including RMSE, MAE, Theil's U, and encompassing tests. In contrast to the variance-ratio test, results from the model-comparison approach are quite decisive in rejecting the random-walk hypothesis in both Chinese stock markets. Moreover, our results provide strong support for the ANN as a potentially useful device for predicting stock prices in emerging markets. Copyright 2000 by MIT Press.

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Article provided by Eastern Finance Association in its journal The Financial Review.

    Volume (Year): 35 (2000)
    Issue (Month): 3 (August)
    Pages: 105-24

    as
    in new window

    Handle: RePEc:bla:finrev:v:35:y:2000:i:3:p:105-24
    Contact details of provider: Web page: http://www.easternfinance.org/

    More information through EDIRC

    Order Information: Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

    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.:

    as in new window
    1. Gau, George W, 1984. "Weak Form Tests of the Efficiency of Real Estate Investment Markets," The Financial Review, Eastern Finance Association, vol. 19(4), pages 301-20, November.
    2. anonymous, 1989. "Amendment to Regulation D," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 26-27.
    3. Alexander, John C, Jr, 1995. "Refining the Degree of Earnings Surprise: A Comparison of Statistical and Analysts' Forecasts," The Financial Review, Eastern Finance Association, vol. 30(3), pages 469-506, August.
    4. Francis X. Diebold & Lutz Kilian, 1999. "Unit Root Tests are Useful for Selecting Forecasting Models," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-063, New York University, Leonard N. Stern School of Business-.
    5. Hutchinson, James M & Lo, Andrew W & Poggio, Tomaso, 1994. " A Nonparametric Approach to Pricing and Hedging Derivative Securities via Learning Networks," Journal of Finance, American Finance Association, vol. 49(3), pages 851-89, July.
    6. Hayri, Aydin & Yilmaz, Kamil, 1997. "Privatisation and Stock Market Efficiency: The British Experience," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(2), pages 113-33, May.
    7. anonymous, 1989. "Amendment effective October 10, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 751, 753.
    8. anonymous, 1989. "Amendment effective April 1, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 287, 299-30.
    9. anonymous, 1989. "Amendment effective May 8, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 447-449.
    10. Bailey, Warren, 1994. "Risk and return on China's new stock markets: Some preliminary evidence," Pacific-Basin Finance Journal, Elsevier, vol. 2(2-3), pages 243-260, May.
    11. anonymous, 1989. "Amendment effective February 28, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue May, pages 363-368.
    12. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    13. anonymous, 1989. "Amendment effective June 7, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 566-567, 56.
    14. Lo, Andrew W. & MacKinlay, A. Craig, 1989. "The size and power of the variance ratio test in finite samples : A Monte Carlo investigation," Journal of Econometrics, Elsevier, vol. 40(2), pages 203-238, February.
    15. James M. Poterba & Lawrence H. Summers, 1987. "Mean Reversion in Stock Prices: Evidence and Implications," NBER Working Papers 2343, National Bureau of Economic Research, Inc.
    16. anonymous, 1989. "Amendment effective August 14, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Sep, pages 633-636.
    17. Terrance Odean, 1999. "Do Investors Trade Too Much?," American Economic Review, American Economic Association, vol. 89(5), pages 1279-1298, December.
    18. anonymous, 1989. "New Zealand economic chronology 1988," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 52, march.
    19. anonymous, 1989. "Amendment effective March 15, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages 156-187.
    20. Anonymous, 1989. "Front Matter," Food Research Institute Studies, Stanford University, Food Research Institute, issue 02.
    21. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
    22. A. Antoniou & N. Ergul & P. Holmes & R. Priestley, 1997. "Technical analysis, trading volume and market efficiency: evidence from an emerging market," Applied Financial Economics, Taylor & Francis Journals, vol. 7(4), pages 361-365.
    23. Basci, Erdem & Ozyildirim, Suheyla & Aydogan, Kursat, 1996. "A note on price-volume dynamics in an emerging stock market," Journal of Banking & Finance, Elsevier, vol. 20(2), pages 389-400, March.
    24. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-73, April.
    25. Anonymous, 1989. "Front Matter," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 4.
    26. Saith A, 1989. "Development strategies and the rural poor," ILO Working Papers 265729, International Labour Organization.
    27. anonymous, 1989. "Proposed amendment," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 820.
    28. Anonymous, 1989. "End Materials," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 18(1), April.
    29. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
    30. Nicholas Barberis & Andrei Shleifer & Robert W. Vishny, 1997. "A Model of Investor Sentiment," NBER Working Papers 5926, National Bureau of Economic Research, Inc.
    31. Mukhopadhyay S, 1989. "Urban labour markets in India," ILO Working Papers 268669, International Labour Organization.
    32. anonymous, 1989. "Announcement January 30, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages 150-151.
    33. Anonymous, 1989. "Front Materials," Choices, Agricultural and Applied Economics Association, vol. 4(1).
    34. anonymous, 1989. "Reserve Bank economic forecasts," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 52, june.
    35. anonymous, 1989. "Proposed amendment," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 65.
    36. Anonymous, 1989. "Front Matter," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 2.
    37. Anonymous, 1989. "End Materials," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 21(01), July.
    38. Anonymous, 1989. "End Material," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 3(4), December.
    39. anonymous, 1989. "Amendment effective March 6, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue May, pages 361-362.
    40. Anonymous, 1989. "Front Matter," Food Research Institute Studies, Stanford University, Food Research Institute, issue 03.
    41. Xiaming Liu & Haiyan Song & Peter Romilly, 1997. "Are Chinese stock markets efficient? A cointegration and causality analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 4(8), pages 511-515.
    42. Anonymous, 1989. "Front Matter," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 3.
    43. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
    44. Long, D Michael & Payne, Janet D & Feng, Chenyang, 1999. "Information Transmission in the Shanghai Equity Market," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(1), pages 29-45, Spring.
    45. Anonymous, 1989. "Organized Symposia Abstracts," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 21(01), July.
    46. Mclin J, 1989. "Petroleum training in Algeria and Nigeria," ILO Working Papers 270084, International Labour Organization.
    47. anonymous, 1989. "Proposed amendment," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages 150.
    48. Belton Fleisher & Dongwei Su, 1996. "Risk, Return and Regulation in Chinese Stock Markets," Working Papers 005, Ohio State University, Department of Economics.
    49. Anonymous, 1989. "End Materials," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 18(2), October.
    50. anonymous, 1989. "Amendment effective April 1, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue May, pages 362-363.
    51. anonymous, 1989. "Proposed amendments," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Sep, pages 631.
    52. Akgiray, Vedat, 1989. "Conditional Heteroscedasticity in Time Series of Stock Returns: Evidence and Forecasts," The Journal of Business, University of Chicago Press, vol. 62(1), pages 55-80, January.
    53. Donaldson, R Glen & Kamstra, Mark, 1996. "A New Dividend Forecasting Procedure That Rejects Bubbles in Asset Prices: The Case of 1929's Stock Crash," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 333-83.
    54. Anonymous, 1989. "USAID Tomorrow: An Interview with Duane Acker," Choices, Agricultural and Applied Economics Association, vol. 4(4).
    55. Standing G, 1989. "Global feminisation through flexible labour," ILO Working Papers 267906, International Labour Organization.
    56. anonymous, 1989. "Amendment effective February 13, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages 153.
    57. Anonymous, 1989. "End Materials," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 21(02), December.
    58. Donaldson, R. Glen & Kamstra, Mark, 1997. "An artificial neural network-GARCH model for international stock return volatility," Journal of Empirical Finance, Elsevier, vol. 4(1), pages 17-46, January.
    59. Domowitz, Ian & Hakkio, Craig S., 1985. "Conditional variance and the risk premium in the foreign exchange market," Journal of International Economics, Elsevier, vol. 19(1-2), pages 47-66, August.
    60. Anonymous, 1989. "Front Materials," Choices, Agricultural and Applied Economics Association, vol. 4(2).
    61. anonymous, 1989. "Comment period extended until April 28, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages 150.
    62. anonymous, 1989. "Amendment effective December 19, 1988," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 73.
    63. unknown, 1989. "Privatization and people`s capitalism," Discussion Paper Serie A 179, University of Bonn, Germany.
    64. Pantula, Sastry G & Gonzalez-Farias, Graciela & Fuller, Wayne A, 1994. "A Comparison of Unit-Root Test Criteria," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 449-59, October.
    65. Anonymous, 1989. "Master'S Thesis Award Abstracts," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 18(2), October.
    66. De Santis, Giorgio & imrohoroglu, Selahattin, 1997. "Stock returns and volatility in emerging financial markets," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 561-579, August.
    67. anonymous, 1989. "Final amendments adopted," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 443, 449-45.
    68. anonymous, 1989. "Change in reporting requirements," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 19.
    69. Anonymous, 1989. "End Materials," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(02), December.
    70. anonymous, 1989. "Money stock data revised," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 508-512.
    71. Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December.
    72. anonymous, 1989. "Appointment of new members, January 11, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages 148.
    73. Bifani P, 1989. "New biotechnologies for rural development," ILO Working Papers 265726, International Labour Organization.
    74. Anonymous, 1989. "Task Force Report: Major Conclusions," Choices, Agricultural and Applied Economics Association, vol. 4(4).
    75. anonymous, 1989. "Appointment of new members, January 14, 1989," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages 148-150.
    76. Anonymous, 1989. "Front Materials," Choices, Agricultural and Applied Economics Association, vol. 4(4).
    77. anonymous, 1989. "Amendment effective December 30, 1988," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 73.
    78. Blanchard P & Wallon V, 1989. "Formation des travailleurs ages en France," ILO Working Papers 269536, International Labour Organization.
    79. Anonymous, 1989. "End Materials," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(01), July.
    80. Anonymous, 1989. "Front Materials," Choices, Agricultural and Applied Economics Association, vol. 4(3).
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bla:finrev:v:35:y:2000:i:3:p:105-24. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

    or (Christopher F. Baum)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.