Non-stationarity and Non-linearity in Stock Prices: Evidence from the OECD Countries

Shyh-Wei Chen ()
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Shyh-Wei Chen: Department of Finance, Dayeh University

Economics Bulletin, 2008, vol. 3, issue 11, 1-11

Abstract: Using 11 OECD countries data, this study employs a Markov Switching unit root regression to investigate the issue of the non-stationarity and non-linearity of stock prices. The results convincingly support the view that the stock prices in the OECD countries are characterized by a two-regime Markov Switching unit root process. For Australia, Austria, Belgium, Finland, Iceland, Ireland, Netherlands and New Zealand, stock prices are characterized by a unit root process, consistent with the efficient market hypothesis that the stock price is either in the high-volatility regime or in the low-volatility regime. For Czech Republic, Denmark and Greece, the shocks to stock prices are highly persistent in one regime, but have finite lives in the other regime. The high-volatility regime arises in most of the countries considered and it tends to prevail over a relatively long period.

JEL-codes: C2 G1 (search for similar items in EconPapers)
Date: 2008-02-27
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Citations: View citations in EconPapers (11)

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