Working Paper Series, Department of Economics, Copenhagen Business School
Christian M. Dahl and Steen Nielsen
THE RANDOM WALK OF STOCK PRICES: IMPLICATIONS OF RECENT NONPARA-METRIC TESTS
Abstract: This paper applies six recently developed nonparametric
tests of serial independence
to monthly US stock returns. Findings of
previous studies based on the BDS test are sup-ported
since most of the
new tests also reject the random walk hypothesis. Furthermore,
properties of the new tests are compared with those of the BDS test. The
much power against ARCH and GARCH alternatives whereas some
of the more recent
tests are superior against other alternatives.
Finally, the power study of this paper shows,
contrary to common
belief, that ARCH and GARCH effects do not seem to explain rejec-tion
of the random walk.
Keywords: Random walk; nonparametric tests; stock returns; (follow links to similar papers)
JEL-Codes: G12; (follow links to similar papers)
21 pages, August 4, 2001
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