Testing for the Random Walk Hypothesis and Structural Breaks in International Stock Prices

Surachai Chancharat and Abbas Valadkhani ()
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Surachai Chancharat: University of Wollongong, http://www.uow.edu.au
Abbas Valadkhani: University of Wollongong, http://www.uow.edu.au/commerce/econ/who/index.html

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

Abstract: This paper examines whether stock prices for 16 countries are trend stationary or follow a random walk process using the (Zivot and Andrews, 1992) and (Lumsdaine and Papell, 1997) tests and monthly data (1987:12-2005:12). With one structural break, the ZA test results provide evidence in favour of random walk hypothesis in 14 countries. However, when two endogenously-determined structural breaks are considered, this hypothesis was rejected for only five countries, suggesting a robust conclusion regarding the non-stationarity of stock prices world wide. In addition, the dates of structural break in most cases point to the Asian crisis in the period 1996-1998.

Keywords: stock market; random walk; structural break (search for similar items in EconPapers)
JEL-codes: G14 G15 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-sea
Date: Written
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