Do stock markets follow a random walk? New evidence for an old question

Dilek Durusu-Ciftci, M. Serdar Ispir and Dundar Kok

International Review of Economics & Finance, 2019, vol. 64, issue C, 165-175

Abstract: This paper re-examines whether the stock markets are efficient or not by focusing the role of cross-sectional dependency and structural breaks with newly developed panel unit root tests proposed by Lee, Wu, and Yang (2016) and Nazlioglu and Karul (2017). To do this, we used 33 countries stock price indexes for the period 1992M05 – 2018M05. Our results indicate that (i) accounting for cross-sectional dependency and structural breaks play an important role for better understanding the behavior of the stock market indices, (ii) recent testing methodologies provide a strong evidence for the weak-form efficiency of stock markets, (iii) the stationarity property of series is consistent regardless of whether capturing structural shifts as sharp or gradual process, (iv) modelling approach to cross-section dependency matters for deciding whether stock prices can be characterized as random walk or mean reversion processes.

Keywords: Stock price; Efficient market hypothesis; Panel data unit root test (search for similar items in EconPapers)
JEL-codes: C12 C23 G14 G15 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:64:y:2019:i:c:p:165-175

DOI: 10.1016/j.iref.2019.06.002

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