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The random walk of stock prices: evidence from a panel of G-7 countries

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  • Zhen Zhu

Abstract

It seems that the random-walk property of stock prices is well established. However, some studies argue that the mean reversion of the stock prices has its theoretical and empirical support and the conventional unit-root tests have weak power against stationary alternatives. This paper uses unit-root tests in panel data to re-examine the time-series properties of the stock prices as it is claimed that the method can increase the power of the tests substantially even with a small number of cross sections. The test result suggests that we cannot reject the random-walk hypothesis for G-7 country stock-price indices.

Suggested Citation

  • Zhen Zhu, 1998. "The random walk of stock prices: evidence from a panel of G-7 countries," Applied Economics Letters, Taylor & Francis Journals, vol. 5(7), pages 411-413.
  • Handle: RePEc:taf:apeclt:v:5:y:1998:i:7:p:411-413
    DOI: 10.1080/135048598354528
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    Citations

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    Cited by:

    1. Shyh-Wei Chen, 2008. "Non-stationarity and Non-linearity in Stock Prices: Evidence from the OECD Countries," Economics Bulletin, AccessEcon, vol. 3(11), pages 1-11.
    2. repec:ebl:ecbull:v:3:y:2008:i:11:p:1-11 is not listed on IDEAS
    3. Chancharat, Surachai & Valadkhani, Abbas, 2007. "Structural Breaks and Testing for the Random Walk Hypothesis in International Stock Prices," MPRA Paper 50394, University Library of Munich, Germany.
    4. Paresh Narayan & Arti Prasad, 2007. "Mean Reversion in Stock Prices: New Evidence from Panel Unit Root Tests for Seventeen European Countries," Economics Bulletin, AccessEcon, vol. 3(34), pages 1-6.
    5. Akarim, Yasemin Deniz & Sevim, Serafettin, 2013. "The impact of mean reversion model on portfolio investment strategies: Empirical evidence from emerging markets," Economic Modelling, Elsevier, vol. 31(C), pages 453-459.
    6. Narayan, Paresh Kumar, 2008. "Do shocks to G7 stock prices have a permanent effect?," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 77(4), pages 369-373.
    7. Chiarella, Carl & Gao, Shenhuai, 2004. "The value of the S&P 500--A macro view of the stock market adjustment process," Global Finance Journal, Elsevier, vol. 15(2), pages 171-196, August.
    8. Ventosa-Santaulària, Daniel, 2008. "Spurious Regression," MPRA Paper 59008, University Library of Munich, Germany.
    9. Khim-Sen Liew & Kian-Ping Lim & Chee-Keong Choong, 2003. "On The Forecastability Of Asean-5 Stock Markets Returns Using Time Series Models," Finance 0307012, EconWPA.
    10. Cunado, J. & Gil-Alana, L.A. & Gracia, Fernando Perez de, 2010. "Mean reversion in stock market prices: New evidence based on bull and bear markets," Research in International Business and Finance, Elsevier, vol. 24(2), pages 113-122, June.

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