Christian M. Dahl and Steen Nielsen
Christian M. Dahl: Purdue University, Postal: Economics Department, Purdue University,
Steen Nielsen: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
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.
21 pages, August 4, 2001
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