Threshold Random Walks in the U.S. Stock Market
This paper extends the work in Serletis and Shintani (2003) and Elder and Serletis ( 2006) by re-examining the empirical evidence for random walk type behavior in the U.S. stock market. In doing so, it tests the random walk hypothesis by employing unit-root tests that are designed to have more statistical power against nonlinear al- ternatives. The nonlinear feature of our model is re ected by three regimes, one of which is characterized by a unit root process and the random walk hypothesis while the lower and upper regimes are well captured by a stationary autoregressive process with mean reversion and predictability.
|Date of creation:||May 2006|
|Date of revision:||May 2006|
|Publication status:||Published in Chaos, Solitons & Fractals, 2008, vol. 37, pages 43-48|
|Contact details of provider:|| Postal: 500 Glenridge Avenue, St. Catharines, Ontario, L2S 3A1|
Phone: (905) 688-5550 3325
Fax: (905) 988-9388
Web page: http://www.brocku.ca/economics/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Myung Jig Kim & Charles R. Nelson & Richard Startz, 1988.
"Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence,"
NBER Working Papers
2795, National Bureau of Economic Research, Inc.
- 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.
- George Kapetanios & Yongcheol Shin, 2003.
"Unit Root Tests in Three-Regime SETAR Models,"
ESE Discussion Papers
104, Edinburgh School of Economics, University of Edinburgh.
- Balke, Nathan S & Fomby, Thomas B, 1997.
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-45, August.
- Tom Doan, . "RATS programs to replicate Balke-Fomby threshold cointegration," Statistical Software Components RTZ00010, Boston College Department of Economics.
- Balke, Nathan S. & Fomby, Thomas B., 1992. "Threshold cointegration," Working Papers 9209, Federal Reserve Bank of Dallas.
- Mark J. Powers, 2000. "Introduction," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(1), pages 3-4, 01.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991.
"Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?,"
Cowles Foundation Discussion Papers
979, Cowles Foundation for Research in Economics, Yale University.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
- Tom Doan, . "KPSS: RATS procedure to perform KPSS (Kwiatowski, Phillips, Schmidt, and Shin) stationarity test," Statistical Software Components RTS00100, Boston College Department of Economics.
- Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-73, April.
- Bruce E. Hansen & Mehmet Caner, 1997.
"Threshold Autoregressions with a Unit Root,"
Boston College Working Papers in Economics
381, Boston College Department of Economics.
- Dirk Te Velde, 2001. "Balance of payments prospects in EMU," NIESR Discussion Papers 178, National Institute of Economic and Social Research.
- Frédérique Bec & Alain Guay & Emmanuel Guerre, 2002.
"Adaptive Consistent Unit Root Tests Based on Autoregressive Threshold Model,"
2002-46, Centre de Recherche en Economie et Statistique.
- Bec, Frederique & Guay, Alain & Guerre, Emmanuel, 2008. "Adaptive consistent unit-root tests based on autoregressive threshold model," Journal of Econometrics, Elsevier, vol. 142(1), pages 94-133, January.
- Pippenger, Michael K & Goering, Gregory E, 1993. "A Note on the Empirical Power of Unit Root Tests under Threshold Processes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(4), pages 473-81, November.
- Peter C.B. Phillips & Pierre Perron, 1986.
"Testing for a Unit Root in Time Series Regression,"
Cowles Foundation Discussion Papers
795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
- Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
- Tom Doan, . "PPUNIT: RATS procedure to perform Phillips-Perron Unit Root test," Statistical Software Components RTS00160, Boston College Department of Economics.
- Frederic Bec & Melika Ben Salem & Marine Carrasco, 2004. "Tests for Unit-Root versus Threshold Specification With an Application to the Purchasing Power Parity Relationship," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 382-395, October.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- Richardson, Matthew, 1993. "Temporary Components of Stock Prices: A Skeptic's View," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 199-207, April.
- Chaudhuri, Kausik & Wu, Yangru, 2003. "Random walk versus breaking trend in stock prices: Evidence from emerging markets," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 575-592, April.
- Andrew W. Lo, A. Craig MacKinlay, 1988.
"Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test,"
Review of Financial Studies,
Society for Financial Studies, vol. 1(1), pages 41-66.
- Tom Doan, . "VRATIO: RATS procedure to implement variance ratio unit root test procedure," Statistical Software Components RTS00231, Boston College Department of Economics.
- Andrew W. Lo & A. Craig MacKinlay, 1987. "Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test," NBER Working Papers 2168, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:brk:wpaper:0602. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jean-Francois Lamarche)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.