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Threshold random walks in the US stock market

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  • Koustas, Zisimos
  • Lamarche, Jean-François
  • Serletis, Apostolos

Abstract

This paper extends the work in Serletis and Shintani [Serletis A, Shintani M. No evidence of chaos but some evidence of dependence in the US stock market. Chaos, Solitons & Fractals 2003;17:449–54.] and Elder and Serletis [Elder J, Serletis A. On fractional integrating dynamics in the US stock market. Chaos, Solitons & Fractals, forthcoming.] by re-examining the empirical evidence for random walk type behavior in the US stock market. In doing so, it tests the random walk hypothesis by employing unit root tests that are designed to have more statistical power against non-linear alternatives. The non-linear feature of our model is reflected by three regimes, one of which is characterized by a unit root process and the random walk hypothesis while the lower and upper regimes are well captured by a stationary autoregressive process with mean reversion and predictability.

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  • Koustas, Zisimos & Lamarche, Jean-François & Serletis, Apostolos, 2008. "Threshold random walks in the US stock market," Chaos, Solitons & Fractals, Elsevier, vol. 37(1), pages 43-48.
    • Handle: RePEc:eee:chsofr:v:37:y:2008:i:1:p:43-48
    DOI: 10.1016/j.chaos.2006.11.024
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    Cited by:

    1. Hinich, Melvin J. & Serletis, Apostolos, 2008. "Randomly modulated periodicity in the US stock market," Chaos, Solitons & Fractals, Elsevier, vol. 36(3), pages 654-659.

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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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