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TESTING FOR THE EFFICIENT MARKET HYPOTHESIS IN STOCK PRICES: INTERNATIONAL EVIDENCE FROM NONLINEAR HETEROGENEOUS PANELS

Published online by Cambridge University Press:  03 April 2013

Chien-Chiang Lee ,
Ching-Chuan Tsong  and
Cheng-Feng Lee
Chien-Chiang Lee*
Affiliation:
National Sun Yat-sen University
Ching-Chuan Tsong
Affiliation:
National Chi Nan University
Cheng-Feng Lee
Affiliation:
National Kaohsiung University of Applied Sciences
*
Address correspondence to Chien-Chiang Lee, Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan; e-mail: [email protected].
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Abstract

Using international data, this paper explores whether the efficient market hypothesis for real stock prices is supported for different panels. The stationarity of a real stock price has important implications for modeling and forecasting financial activities. On a global scale, we implement the recently developed nonlinear heterogeneous panel unit root test, which allows us to account for possible nonlinearity and cross-section dependence and to identify how many and which countries of the panel contain a unit root. The primary conclusion is that the stationarity of real stock prices varies between regions and levels of economic development. Overall, our empirical results illustrate that real stock prices in these countries are a mixture of stationary (integrated of order zero) and nonstationary (integrated of order one) processes.

Keywords

Real Stock PricesPanel Unit RootNonlinearityCross-Section Dependence
Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 4 , June 2014 , pp. 943 - 958
Copyright
Copyright © Cambridge University Press 2013 

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