Autori
Roldan Casas, Jose A.
Garcia Moreno, Maria B.

Titolo
A procedure for testing the hypothesis of weak efficiency in financial markets: a Monte Carlo simulation
Periodico
Statistical methods & applications : Journal of the Italian Statistical Society
Anno: 2022 - Volume: 31 - Fascicolo: 5 - Pagina iniziale: 1289 - Pagina finale: 1327

The weak form of the efficient market hypothesis is identified with the conditions established by different types of random walks (1–3) on the returns associated with the prices of a financial asset. The methods traditionally applied for testing weak efficiency in a financial market as stated by the random walk model test only some necessary, but not sufficient, condition of this model. Thus, a procedure is proposed to detect if a return series associated with a given price index follows a random walk and, if so, what type it is. The procedure combines methods that test only a necessary, but not sufficient, condition for the fulfilment of the random walk hypothesis and methods that directly test a particular type of random walk. The proposed procedure is evaluated by means of a Monte Carlo experiment, and the results show that this procedure performs better (more powerful) against linear correlation-only alternatives when starting from the Ljung–Box test. On the other hand, against the random walk type 3 alternative, the procedure is more powerful when it is initiated from the BDS test.



SICI: 1618-2510(2022)31:5<1289:APFTTH>2.0.ZU;2-I

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