Testing for the martingale hypothesis in Asian stock prices: evidence from a new joint variance ratio test

Jae Kim

No 98, Econometric Society 2004 Australasian Meetings from Econometric Society

Abstract: This paper tests for the martingale (or random walk) hypothesis in the stock prices of a group of Asian countries. The selected countries represent well-developed markets (Hong Kong and Japan) as well as emerging markets (Korea, Taiwan and Thailand). This paper adopts a new joint variance ratio test which is a finite sample test based on the wild bootstrap method. It is different from the conventional variance ratio tests in that its sampling distribution is approximated by a resampling method, which has been found to exhibit better small sample properties than the asymptotic method. The test for the martingale hypothesis is conducted with moving-subsample windows, to control the sensitivity of the results to the particular sample periods. Overall, it is found that the stock prices of Japan, Korea, and Hong Kong are found to follow the martingale, indicating that their stock markets have been efficient.

Keywords: Martingale hypothesis; Stock Market Efficiency; Variance Ratio Test; Wild bootstrap (search for similar items in EconPapers)
JEL-codes: C14 G14 G15 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-ets, nep-fin and nep-rmg
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Citations: View citations in EconPapers (3)

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