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Tests for weak form market efficiency in stock prices: Monte Carlo evidence

  • Khaled, Mohammed S
  • Keef, Stephen P
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    Efficiency in financial markets is tested by applying variance ratio (VR)tests, but unit root tests are also used by many, sometimes in addition to the VR tests. There is a lack of clarity in the literature about the implication of these test results when they seem to disagree. We distinguish between two different types of predictability, called "structural predictability" and "error predictability". Standard unit root tests pick up structural predictability. VR tests pick up both structural and error predictability.

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    File URL: http://researcharchive.vuw.ac.nz/handle/10063/1993
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    Paper provided by Victoria University of Wellington, School of Economics and Finance in its series Working Paper Series with number 1993.

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    Date of creation: 2011
    Date of revision:
    Handle: RePEc:vuw:vuwecf:1993
    Contact details of provider: Postal: Alice Fong, Administrator, School of Economics and Finance, Victoria Business School, Victoria University of Wellington, PO Box 600 Wellington, New Zealand
    Phone: +64 (4) 463-5353
    Fax: +64 (4) 463-5014
    Web page: http://www.victoria.ac.nz/sef
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    1. Zeynel Abidin Ozdemir, 2008. "Efficient market hypothesis: evidence from a small open-economy," Applied Economics, Taylor & Francis Journals, vol. 40(5), pages 633-641.
    2. 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.
    3. 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.
    4. Vasudeva Murthy & Kenneth Washer & John Wingender, 2011. "Are stock prices in the US nonstationary? Evidence from contemporary unit root tests," Applied Financial Economics, Taylor & Francis Journals, vol. 21(22), pages 1703-1709.
    5. Chow, K. Victor & Denning, Karen C., 1993. "A simple multiple variance ratio test," Journal of Econometrics, Elsevier, vol. 58(3), pages 385-401, August.
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