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Extending the variance ratio test to visualize structure in data: an application to the S&P 100 Index

  • Andreas Lindemann
  • Christian L. Dunis
  • Paulo Lisboa
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    The aim of this paper is to present a method able to graphically describe the amount of structure in a time series. In the following, 'structure' is defined as the extent to which a time series is either trending or mean-reverting (that is showing pockets of positive as well as negative autocorrelation). What is defined as being trending, respectively mean-reverting, should be seen in relation to the characteristics of a random walk. Testing most of the constituents of the Standard & Poor's 100 index for structure and using a modified variance ratio that focuses on the whole ratio profile rather than an individual ratio, trending is detected as well as mean-reverting structure over a time period of more than 10 years.

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    Article provided by Taylor and Francis Journals in its journal Applied Financial Economics Letters.

    Volume (Year): 1 (2005)
    Issue (Month): 3 (May)
    Pages: 189-197

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    Handle: RePEc:taf:apfelt:v:1:y:2005:i:3:p:189-197
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    1. Brock, W. & Lakonishok, J. & Lebaron, B., 1991. "Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns," Working papers 90-22, Wisconsin Madison - Social Systems.
    2. Christopher J. Neely & Paul A. Weller & Robert Dittmar, 1997. "Is technical analysis in the foreign exchange market profitable? a genetic programming approach," Working Papers 1996-006, Federal Reserve Bank of St. Louis.
    3. Fong, Wai Mun & Koh, Seng Kee & Ouliaris, Sam, 1997. "Joint Variance-Ratio Tests of the Martingale Hypothesis for Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 51-59, January.
    4. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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