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Non-stationarity and Non-linearity in Stock Prices: Evidence from the OECD Countries

  • Shyh-Wei Chen

    ()

    (Department of Finance, Dayeh University)

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    Using 11 OECD countries data, this study employs a Markov Switching unit root regression to investigate the issue of the non-stationarity and non-linearity of stock prices. The results convincingly support the view that the stock prices in the OECD countries are characterized by a two-regime Markov Switching unit root process. For Australia, Austria, Belgium, Finland, Iceland, Ireland, Netherlands and New Zealand, stock prices are characterized by a unit root process, consistent with the efficient market hypothesis that the stock price is either in the high-volatility regime or in the low-volatility regime. For Czech Republic, Denmark and Greece, the shocks to stock prices are highly persistent in one regime, but have finite lives in the other regime. The high-volatility regime arises in most of the countries considered and it tends to prevail over a relatively long period.

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    File URL: http://www.accessecon.com/pubs/EB/2008/Volume3/EB-08C20012A.pdf
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    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 3 (2008)
    Issue (Month): 11 ()
    Pages: 1-11

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    Handle: RePEc:ebl:ecbull:eb-08c20012
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