Deakin University
Browse

A GARCH model for testing market efficiency

Version 2 2024-06-03, 14:54
Version 1 2018-03-13, 11:39
report
posted on 2024-06-03, 14:54 authored by PK Narayan, Ruipeng LiuRuipeng Liu
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

Pagination

1-31

Language

eng

Notes

School working paper (Deakin University. School of Accounting, Economics and Finance) ; 2015/01 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.

Publication classification

CN.1 Other journal article

Copyright notice

2015, The Authors

Publisher

Deakin University, School of Accounting, Economics and Finance

Place of publication

Geelong, Vic.

Series

School Working paper - Financial Econometrics Series ; SWP 2015/01

Usage metrics

    Research Publications

    Categories

    No categories selected

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC