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A GARCH model for testing market efficiency
journal contribution
posted on 2016-03-01, 00:00 authored by Paresh Narayan, Ruipeng LiuRuipeng Liu, Joakim WesterlundJoakim WesterlundIn this paper we propose a generalised autoregressive conditional heteroskedasticity (GARCH) model-based test for a unit root. The model allows for two endogenous structural breaks. We test for unit roots in 156 US stocks listed on the NYSE over the period 1980 to 2007. We find that the unit root null hypothesis is rejected in 40% of the stocks, and only in four out of the nine sectors the null is rejected for over 50% of stocks. We conclude with an economic significance analysis, showing that mostly stocks with mean reverting prices tend to outperform stocks with non-stationary prices.
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Journal
Journal of international financial markets, institutions and moneyVolume
41Pagination
121 - 138Publisher
ElsevierLocation
Amsterdam, The NetherlandsPublisher DOI
ISSN
1042-4431Language
engPublication classification
C Journal article; C1 Refereed article in a scholarly journalCopyright notice
2016, ElsevierUsage metrics
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