Mean reversion versus random walk in G7 stock prices evidence from multiple trend break unit root tests
journal contribution
posted on 2007-04-01, 00:00authored byParesh 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