File(s) under permanent embargo

A GARCH model for testing market efficiency

journal contribution
posted on 01.03.2016, 00:00 authored by Paresh Narayan, Ruipeng LiuRuipeng Liu, Joakim WesterlundJoakim Westerlund
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.

History

Journal

Journal of international financial markets, institutions and money

Volume

41

Pagination

121 - 138

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

1042-4431

Language

eng

Publication classification

C Journal article; C1 Refereed article in a scholarly journal

Copyright notice

2016, Elsevier