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Testing for efficiency and non-linearity in market and natural time series

Author

Listed:
  • Teo Jasic
  • Douglas Wood

Abstract

Time series in traded markets such as currencies and securities involve supply/demand interaction, so they might be expected to contain distinctive and identifiable structures in comparison with data based on natural phenomena such as river flows or sunspots. This paper tests this proposition using standard econometric tests including variance ratios, modified rescaled range (R/S) ratios and BDS statistics together with non-linear prediction models. Four time series of each type (market or natural) are subject to a battery of tests for random walk and non-linear dependence. Surprisingly, the tests provide no reliable discrimination between the two types of series or reveal any embedded specification differences.

Suggested Citation

  • Teo Jasic & Douglas Wood, 2006. "Testing for efficiency and non-linearity in market and natural time series," Journal of Applied Statistics, Taylor & Francis Journals, vol. 33(2), pages 113-138.
    • Handle: RePEc:taf:japsta:v:33:y:2006:i:2:p:113-138
    DOI: 10.1080/02664760500250370
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    Cited by:

    1. Alda, Mercedes, 2017. "The relationship between pension funds and the stock market: Does the aging population of Europe affect it?," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 83-97.
    2. Kugiumtzis Dimitris, 2008. "Evaluation of Surrogate and Bootstrap Tests for Nonlinearity in Time Series," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(1), pages 1-26, March.
    3. Jasman Tuyon & Zamri Ahmada, 2016. "Behavioural finance perspectives on Malaysian stock market efficiency," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 16(1), pages 43-61, March.

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