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Joakim Westerlund. Photo.

Joakim Westerlund

Professor, Programme director – Master of Data Analytics and Business Economics

Joakim Westerlund. Photo.

A GARCH Model for Testing Market Efficiency

Author

  • Joakim Westerlund
  • Paresh Narayan
  • Puipeng Liu

Summary, in English

In this paper we propose a generalised autoregressive conditional heteroskedasticity (GARCH) model-based test for a unit root. The model allows for two endogenous structural breaks. We test for unit roots in 156 US stocks listed on the NYSE over the period 1980 to 2007. We find that the unit root null hypothesis is rejected in 40% of the stocks, and only in four out of the nine sectors the null is rejected for over 50% of stocks. We conclude with an economic significance analysis, showing that mostly stocks with mean reverting prices tend to outperform stocks with non-stationary prices.

Department/s

  • Department of Economics

Publishing year

2016

Language

English

Pages

121-138

Publication/Series

Journal of International Financial Markets, Institutions, and Money

Volume

41

Document type

Journal article

Publisher

Elsevier, North-Holland

Topic

  • Economics

Keywords

  • Unit Root
  • Structural Break
  • Efficient Market Hypothesis
  • Stock Price
  • GARCH

Status

Published

ISBN/ISSN/Other

  • ISSN: 1042-4431