The long-horizon returns behaviour of the Portuguese stock market1

Nelson Manuel Areal and Manuel Jose Da Rocha Armada

The European Journal of Finance, 2002, vol. 8, issue 1, 93-122

Abstract: In the last few years several research studies have challenged the traditional weak-form efficiency tests of the stock market. These studies suggested an alternative to the random walk model, containing temporary and permanent components. If stocks follow such a model then the traditional tests, using returns computed for short intervals would be unable to detect them. To investigate the evidence for such models in the Portuguese stock market ten stock indexes were created. This is a pioneer study of the Portuguese stock market, and uses nominal, real and excess returns, computed for longer horizons. Three methodologies were used: variance ratios, ordinary least squares regressions and weighted least squares regressions. The statistical significance of the results was studied using traditional parametric tests as well as non-parametric tests. The evidence is mixed, as the presence of tendencies towards mean aversion and mean reversion were detected. Results also show that the evidence is very sensitive to the methodology used and the signifcance tests performed. These results, however, do not necessarily reject the weak-form market efficiency hypothesis.

Keywords: Market Efficiency; Stock Market Anomalies; Statistical Simulation Methods; Monte Carlo Methods (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (2)

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DOI: 10.1080/13518470110076303

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