A GARCH model for testing market efficiency

Narayan, Paresh Kumar, Liu, Ruipeng and Westerlund, Joakim 2016, A GARCH model for testing market efficiency, Journal of international financial markets, institutions and money, vol. 41, pp. 121-138, doi: 10.1016/j.intfin.2015.12.008.

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Title A GARCH model for testing market efficiency
Author(s) Narayan, Paresh KumarORCID iD for Narayan, Paresh Kumar orcid.org/0000-0001-7934-8146
Liu, RuipengORCID iD for Liu, Ruipeng orcid.org/0000-0003-4174-6135
Westerlund, JoakimORCID iD for Westerlund, Joakim orcid.org/0000-0002-8030-5706
Journal name Journal of international financial markets, institutions and money
Volume number 41
Start page 121
End page 138
Total pages 18
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2016-03
ISSN 1042-4431
Keyword(s) efficient market hypothesis
GARCH
unit root
structural break
stock price
Summary In this paper we propose a generalised autoregressive conditional heteroskedasticity (GARCH) model-based test for a unit root. The model allows for two endogenous structural breaks. We test for unit roots in 156 US stocks listed on the NYSE over the period 1980 to 2007. We find that the unit root null hypothesis is rejected in 40% of the stocks, and only in four out of the nine sectors the null is rejected for over 50% of stocks. We conclude with an economic significance analysis, showing that mostly stocks with mean reverting prices tend to outperform stocks with non-stationary prices.
Language eng
DOI 10.1016/j.intfin.2015.12.008
Field of Research 1502 Banking, Finance And Investment
1402 Applied Economics
150202 Financial Econometrics
Socio Economic Objective 910109 Savings and Investments
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2016, Elsevier
Persistent URL http://hdl.handle.net/10536/DRO/DU:30081583

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