Patterns in stock market movements tested as random number generators

John R. Doyle and Catherine H. Chen

European Journal of Operational Research, 2013, vol. 227, issue 1, 122-132

Abstract: This paper shows that tests of Random Number Generators (RNGs) may be used to test the Efficient Market Hypothesis (EMH). It uses the Overlapping Serial Test (OST), a standard test in RNG research, to detect anomalous patterns in the distribution of sequences of stock market movements up and down. Our results show that most stock markets exhibit idiosyncratic recurrent patterns, contrary to the efficient market hypothesis; also that OST detects a different kind of non-randomness to standard econometric long- and short-memory tests. Exposure of these anomalies should contribute to making markets more efficient.

Keywords: Stock market time series; Financial data mining; Forecasting; Finance; Overlapping serial test (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:227:y:2013:i:1:p:122-132

DOI: 10.1016/j.ejor.2012.11.057

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