THE RANDOM WALK OF STOCK PRICES: IMPLICATIONS OF RECENT NONPARA-METRIC TESTS

Christian Dahl () and Steen Nielsen
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Steen Nielsen: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark

No 07-2001, Working Papers from Copenhagen Business School, Department of Economics

Abstract: This paper applies six recently developed nonparametric tests of serial independence

to monthly US stock returns. Findings of previous studies based on the BDS test are sup-ported

since most of the new tests also reject the random walk hypothesis. Furthermore,

power properties of the new tests are compared with those of the BDS test. The latter has

much power against ARCH and GARCH alternatives whereas some of the more recent

tests are superior against other alternatives. Finally, the power study of this paper shows,

contrary to common belief, that ARCH and GARCH effects do not seem to explain rejec-tion

of the random walk.

Keywords: Random walk; nonparametric tests; stock returns (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets
Date: 2001-08-04
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