Tests of the random walk hypothesis for financial data

Tomomichi Nakamura and Michael Small

Physica A: Statistical Mechanics and its Applications, 2007, vol. 377, issue 2, 599-615

Abstract: We propose a method from the viewpoint of deterministic dynamical systems to investigate whether observed data follow a random walk (RW) and apply the method to several financial data. Our method is based on the previously proposed small-shuffle surrogate method. Hence, our method does not depend on the specific data distribution, although previously proposed methods depend on properties of the data distribution. The data we use are stock market (Standard & Poor's 500 in US market and Nikkei225 in Japanese market), exchange rate (British Pound/US dollar and Japanese Yen/US dollar), and commodity market (gold price and crude oil price). We found that these financial data are RW whose first differences are independently distributed random variables or time-varying random variables.

Keywords: Econophysics; Financial data; Random walk; Surrogate data (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:377:y:2007:i:2:p:599-615

DOI: 10.1016/j.physa.2006.10.073

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