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- Title
On Testing the Random-Walk Hypothesis: A Model-Comparison Approach.
- Authors
Darrat, Ali F.
- Abstract
The main intention of this paper is to investigate, with new daily data, whether prices in the two Chinese stock exchanges (Shanghai and Shenzhen) follow a random-walk process as required by market efficiency. We use two different approaches, the standard variance-ratio test of Lo and MacKinlay (1988) and a model-comparison test that compares the ex post forecasts from a NAIVE model with those obtained from several alternative models: ARIMA, GARCH and the Artificial Neural Network (ANN). To evaluate ex post forecasts, we utilize several procedures including RMSE, MAE, Theil's U, and encompassing tests. In contrast to the variance-ratio test, results from the model-comparison approach are quite decisive in rejecting the random-walk hypothesis in both Chinese stock markets. Moreover, our results provide strong support for the ANN as a potentially useful device for predicting stock prices in emerging markets.
- Subjects
SHENZHEN (Guangdong Sheng, China : East); CHINA; SHANGHAI (China); STOCK prices; STOCK exchanges; ECONOMIC conditions in China
- Publication
Financial Review, 2000, Vol 35, Issue 3, p105
- ISSN
0732-8516
- Publication type
Article
- DOI
10.1111/j.1540-6288.2000.tb01423.x