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Mean reversion versus random walk in G7 stock prices evidence from multiple trend break unit root tests

journal contribution
posted on 2007-04-01, 00:00 authored by Paresh Narayan, R Smyth
This paper provides evidence on the random walk hypothesis in G7 stock price indices using unit root tests which allow for one and two structural breaks in the trend. Of the seven countries we find, at best, evidence of mean reversion in the stock price index of Japan. Thus, overall, our results support the random walk hypothesis. We also consider the implications of the identified structural breaks for movement in stock prices over time. Our main conclusion from this exercise is that the second break in stock prices has had a detrimental effect on movements in stock prices in the G7 countries.

History

Journal

Journal of international financial markets, institutions and money

Volume

17

Issue

2

Pagination

152 - 166

Publisher

Elsevier B.V.

Location

Amsterdam, The Netherlands

ISSN

1042-4431

eISSN

1873-0612

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2005, Elsevier

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