A comparison of variance ratio tests of random walk: A case of Asian emerging stock markets |
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| Authors: | Hafiz AAB Hoque Jae H Kim Chong Soo Pyun |
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| Institution: | aDepartment of Finance, University of Dhaka, Bangladesh;bDepartment of Econometrics and Business Statistics, Monash University, Australia;cFogelman College of Business and Economics, University of Memphis, Memphis, TN 38152, USA |
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| Abstract: | This study re-examines the random walk hypothesis for eight emerging equity markets in Asia: Hong Kong, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand. The hypothesis is tested with two new variance ratio tests–Wright's rank and sign and Whang–Kim subsampling tests–as well as the conventional Lo–MacKinlay and Chow–Denning tests. We found that (i) the stock prices of the eight Asian countries do not follow random walk with the possible exceptions of Taiwan and Korea and (ii) the accelerated opening of the eight stock markets to foreign investors following the Asian financial crisis in 1997 has not significantly altered the mean-reversion patterns of stock price vis-à-vis relative market efficiency. Our study affirms that Wright's and Whang–Kim's tests yield far less ambiguous results as compared to Lo–MacKinlay and Chow–Denning tests. |
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| Keywords: | Stock market efficiency Mean reversion Variance ratio test Non-parametric tests Subsampling |
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