How regular are directional movements in commodity and asset prices? A Wald test

Atle Oglend and Tore Kleppe ()

Journal of Empirical Finance, 2016, vol. 38, issue PA, 290-306

Abstract: This paper derives a Wald test to evaluate whether up/down movements in prices follow a two-state first-order time-homogenous Markov chain. Probabilities that prices, separated by up to k periods, move in the same direction are derived and compared to empirical probabilities using a Wald statistic. The hypothesis is evaluated for 48 monthly commodity prices and five major stock price indices. Nominal commodity prices show evidence of symmetric momentum in up and down movements. Stock indices have momentum in up movements, with a positive trend due to more frequent up movements. The testing reveals fundamental differences between commodity and asset prices. Several commodities show evidence against the null hypothesis, while none of the stock indices reject the hypothesis.

Keywords: Commodity prices; Asset prices; Duration dependence; Efficiency; Markov chain (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539816300652
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:38:y:2016:i:pa:p:290-306

DOI: 10.1016/j.jempfin.2016.07.001

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().