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Are the Australian and New Zealand stock prices nonlinear with a unit root?

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  • Paresh Kumar Narayan

Abstract

Whether or not stock prices are characterized by a unit root has important implications for policy. For instance, by applying unit root tests one can deduce whether stock returns can be predicted from previous changes in prices. A finding of a unit root implies that stock returns cannot be predicted. This paper investigates whether or not stock prices for Australia and New Zealand can be characterized by a unit root process. An unrestricted two-regime threshold autoregressive model is used with an autoregressive unit root. Among the main results, it is found that the stock prices of both countries are nonlinear processes that are characterized by a unit root process, consistent with the efficient market hypothesis.

Suggested Citation

  • Paresh Kumar Narayan, 2005. "Are the Australian and New Zealand stock prices nonlinear with a unit root?," Applied Economics, Taylor & Francis Journals, vol. 37(18), pages 2161-2166.
  • Handle: RePEc:taf:applec:v:37:y:2005:i:18:p:2161-2166
    DOI: 10.1080/00036840500217887
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    References listed on IDEAS

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    1. Paresh Kumar Narayan & Russell Smyth, 2004. "Is South Korea's stock market efficient?," Applied Economics Letters, Taylor & Francis Journals, vol. 11(11), pages 707-710.
    2. Paresh Kumar Narayan & Russell Smyth, 2005. "Are OECD stock prices characterized by a random walk? Evidence from sequential trend break and panel data models," Applied Financial Economics, Taylor & Francis Journals, vol. 15(8), pages 547-556.
    3. Abhyankar, A & Copeland, L S & Wong, W, 1997. "Uncovering Nonlinear Structure in Real-Time Stock-Market Indexes: The S&P 500, the DAX, the Nikkei 225, and the FTSE-100," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 1-14, January.
    4. Peter Huber, 1997. "Stock market returns in thin markets: evidence from the Vienna Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 7(5), pages 493-498.
    5. Huntley Schaller & Simon Van Norden, 1997. "Regime switching in stock market returns," Applied Financial Economics, Taylor & Francis Journals, vol. 7(2), pages 177-191.
    6. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November.
    7. Kanas, Angelos, 2001. "Neural Network Linear Forecasts for Stock Returns," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 245-254, July.
    8. Qi, Min, 1999. "Nonlinear Predictability of Stock Returns Using Financial and Economic Variables," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 419-429, October.
    9. Xiaming Liu & Haiyan Song & Peter Romilly, 1997. "Are Chinese stock markets efficient? A cointegration and causality analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 4(8), pages 511-515.
    10. Abhyankar, A & Copeland, L S & Wong, W, 1995. "Nonlinear Dynamics in Real-Time Equity Market Indices: Evidence from the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(431), pages 864-880, July.
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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:30:y:2010:i:1:p:274-281 is not listed on IDEAS
    3. repec:prg:jnlpep:v:preprint:id:560:p:1-15 is not listed on IDEAS
    4. Lyócsa, Štefan & Výrost, Tomáš & Baumöhl, Eduard, 2011. "Unit-root and stationarity testing with empirical application on industrial production of CEE-4 countries," MPRA Paper 29648, University Library of Munich, Germany.
    5. Maslyuk, Svetlana & Smyth, Russell, 2009. "Non-linear unit root properties of crude oil production," Energy Economics, Elsevier, vol. 31(1), pages 109-118, January.
    6. Qian, Xi-Yuan & Song, Fu-Tie & Zhou, Wei-Xing, 2008. "Nonlinear behaviour of the Chinese SSEC index with a unit root: Evidence from threshold unit root tests," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(2), pages 503-510.
    7. repec:ebl:ecbull:v:3:y:2008:i:11:p:1-11 is not listed on IDEAS
    8. Takashi Matsuki, 2016. "Linear and nonlinear comovement in Southeast Asian local currency bond markets: a stepwise multiple testing approach," Empirical Economics, Springer, vol. 51(2), pages 591-619, September.
    9. repec:bla:ecorec:v:93:y:2017:i::p:38-56 is not listed on IDEAS
    10. Siow-hooi Tan & Muzafar-shah Habibullah & Roy-wye-leong Khong, 2010. "Non-linear unit root properties of stock prices: Evidence from India, Pakistan and Sri Lanka," Economics Bulletin, AccessEcon, vol. 30(1), pages 274-281.
    11. Guglielmo Maria Caporale & Luis A. Gil‐Alana & James C. Orlando, 2016. "Linkages Between the US and European Stock Markets: A Fractional Cointegration Approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 143-153, April.
    12. Anita CEH CASNI & Maruska VIZEK, 2014. "Interactions between Real Estate and Equity Markets: an Investigation of Linkages in Developed and Emerging Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(2), pages 100-119, March.
    13. Narayan, Seema & Rath, Badri Narayan & Narayan, Paresh Kumar, 2012. "Evidence of Wagner's law from Indian states," Economic Modelling, Elsevier, vol. 29(5), pages 1548-1557.
    14. Tülin Anlas & Cengiz Toraman, 2016. "Analysing the Efficiency of the Turkish Stock Market with Multiple Structural Breaks," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(12), pages 721-740, December.
    15. repec:spr:jeicoo:v:12:y:2017:i:2:d:10.1007_s11403-015-0157-5 is not listed on IDEAS
    16. Lee, Chien-Chiang & Lee, Jun-De & Lee, Chi-Chuan, 2010. "Stock prices and the efficient market hypothesis: Evidence from a panel stationary test with structural breaks," Japan and the World Economy, Elsevier, vol. 22(1), pages 49-58, January.
    17. 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.
    18. Kian-Ping Lim & Weiwei Luo & Jae H. Kim, 2013. "Are US stock index returns predictable? Evidence from automatic autocorrelation-based tests," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 953-962, March.
    19. Narayan, Paresh Kumar, 2006. "The behaviour of US stock prices: Evidence from a threshold autoregressive model," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 71(2), pages 103-108.

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