Structural Breaks and Testing for the Random Walk Hypothesis in International Stock Prices

A. Valadkhani, University of Wollongong
S. Chancharat , University of Wollongong

Article comments

This article was originally published as: Valadkhani, A, and Chancharat, S, Structural Breaks and Testing for the Random Walk Hypothesis in International Stock Prices, Journal of the Korean Economy, 8(1), 2007, 21-38. Original journal article available here.

Abstract

This paper examines whether stock prices for 16 countries are trend stationary or follow a random walk process using the (Zivot and Andrews, 1992) and (Lumsdaine and Papell, 1997) tests and monthly data (1987:12-2005:12). With one structural break, the ZA test results provide evidence in favour of random walk hypothesis in 14 countries. However, when two endogenously-determined structural breaks are considered, this hypothesis was rejected for only five countries, suggesting a robust conclusion regarding the non-stationarity of stock prices world wide. In addition, the dates of structural break in most cases point to the Asian crisis in the period 1996-1998.