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- Title
THE RANDOM WALK HYPOTHESIS IN THE SPANISH STOCK MARKET: 1980-1992.
- Authors
Blasco, Natividad; Del Rio, Cristina; Santamaria, Rafael
- Abstract
The article examines the random walk hypothesis in the Spanish stock market using disaggregated daily data for the period between January 1980 and 1992. Before market efficiency was strictly defined as it has been in more recent years, many studies on the behaviour of stock market prices suggested that the expected return of speculative strategies should be zero. Prices in a competitive market reflect all available information and their variations are theoretically caused by the arrival of unexpected news. In this sense, stock returns are described, in statistical terms, as independent random variables. In order to verify this argument, one hypothesis widely tested is that stock prices follow a random walk; this implies that changes in prices are independent. Under such circumstances, useful strategies based on historical data cannot be designed. The early tests, focusing on autocorrelation and spectral analysis, provide evidence in support of the random walk hypothesis. Autocorrelation and spectral tests are useful if time series are generated by linear stochastic processes. In the last few years, several research studies have found evidence of predictability of stock returns over both short and long time spans.
- Subjects
SPAIN; STOCK exchanges; RANDOM walks; FINANCIAL markets; STOCK prices; RATE of return; RANDOM variables; AUTOCORRELATION (Statistics); STOCHASTIC processes
- Publication
Journal of Business Finance & Accounting, 1997, Vol 24, Issue 5, p667
- ISSN
0306-686X
- Publication type
Article
- DOI
10.1111/1468-5957.00128