Does the financial crisis influence the random walk behaviour of international stock markets?

Benjamin Auer and Martin Schuster

Applied Economics Letters, 2011, vol. 18, issue 4, 319-323

Abstract: In this note, we use several modern multiple variance ratio tests (VR tests) to investigate whether the financial crisis has an impact on the random walk behaviour of international stock markets. Grouping a pre-crisis- and a crisis-panel in developed, emerging and frontier markets, respectively, and using daily returns of selected Morgan Stanley Capital International (MSCI) International Equity Indices we find that markets classified as developed or emerging mostly follow a random walk whereas we find the opposite for frontier markets. Frontier markets show a higher proportion of countries that experience changes in the random walk behaviour and changes from random walk to nonrandom walk are more frequent. We also find that the choice of multiple VR test does not matter for this kind of analysis.

Date: 2011
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DOI: 10.1080/13504851003670676

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