Tests for weak form market efficiency in stock prices: Monte Carlo evidence

Mohammed S Khaled and Stephen P Keef

No 18606, Working Paper Series from Victoria University of Wellington, School of Economics and Finance

Abstract: Efficiency in financial markets is tested by applying variance ratio (VR)tests, but unit root tests are also used by many, sometimes in addition to the VR tests. There is a lack of clarity in the literature about the implication of these test results when they seem to disagree. We distinguish between two different types of predictability, called "structural predictability" and "error predictability". Standard unit root tests pick up structural predictability. VR tests pick up both structural and error predictability.

Keywords: Unit Root; Weak Form Efficiency; Random Walk; Autocorrelation; Variance Ratio (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwecf:18606

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