Scandinavian Working Papers in Economics
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Department of Economics, Copenhagen Business School Working Paper Series, Department of Economics, Copenhagen Business School

No 07-2001:

Christian M. Dahl and Steen Nielsen

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,

power properties of the new tests are compared with those of the BDS test. The latter has

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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