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On the validity of the weak-form efficient markets hypothesis applied to the London stock exchange

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  • Nabeel Al-Loughani
  • David Chappell

Abstract

The validity of the weak form of the efficient markets hypothesis (EMH) is tested for the FTSE 30 share index during a period when government economic policy towards the financial markets was relatively unchanging. The EMH would suggest random walk behaviour but this does not occur; instead the data series has significant heteroscedasticity. The series is successfully explained by a GARCH M(1, 1) model. We use the BDS test to show that the residuals from this model are IID.

Suggested Citation

  • Nabeel Al-Loughani & David Chappell, 1997. "On the validity of the weak-form efficient markets hypothesis applied to the London stock exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 7(2), pages 173-176.
  • Handle: RePEc:taf:apfiec:v:7:y:1997:i:2:p:173-176
    DOI: 10.1080/096031097333736
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    References listed on IDEAS

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    1. Myung Jig Kim & Charles R. Nelson & Richard Startz, 1991. "Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 515-528.
    2. Kim, M.J. & Nelson, C.R. & Startz, R., 1988. "Mean Reversion In Stock Prices? A Reappraisal Of Empirical Evidence," Discussion Papers in Economics at the University of Washington 88-15, Department of Economics at the University of Washington.
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    Cited by:

    1. Geoff Willcocks, 2009. "UK Housing Market: Time Series Processes with Independent and Identically Distributed Residuals," The Journal of Real Estate Finance and Economics, Springer, vol. 39(4), pages 403-414, November.
    2. ASGHAR, Zahid, 2008. "Energy–Gdp Relationship: A Causal Analysis For The Five Countries Of South Asia," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(1), pages 167-180.
    3. Ren, Yu & Xiong, Cong & Yuan, Yufei, 2012. "House price bubbles in China," China Economic Review, Elsevier, vol. 23(4), pages 786-800.
    4. BRIO, Esther B. & PEROTE, Javier, 2008. "Forecasting Market Crashes: Does Density Specification Matter?," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(1), pages 53-58.
    5. Gozbasi, Onur & Kucukkaplan, Ilhan & Nazlioglu, Saban, 2014. "Re-examining the Turkish stock market efficiency: Evidence from nonlinear unit root tests," Economic Modelling, Elsevier, vol. 38(C), pages 381-384.
    6. repec:wyi:journl:002167 is not listed on IDEAS

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