Do shocks to G7 stock prices have a permanent effect? Evidence from panel unit root tests with structural change

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Abstract

There is a plethora of studies that investigate evidence for the behaviour of stock prices using univariate techniques for unit roots. Whether or not stock prices are characterised by a unit root have implications for the efficient market hypothesis, which asserts that returns of a stock market are unpredictable from previous price changes. The extant literature has found mixed evidence on the integrational properties of stock prices. In this paper, for the first time, we provide evidence on the unit root hypothesis for G7 stock price indices using the Lagrangian multiplier panel unit root test that allows for structural breaks. Our main finding is that stock prices are stationary processes, inconsistent with the efficient market hypothesis.

Original languageEnglish
Pages (from-to)369-373
Number of pages5
JournalMathematics and Computers in Simulation
Volume77
Issue number4
DOIs
Publication statusPublished - 4 Apr 2008
Externally publishedYes

Keywords

  • Efficient market hypothesis
  • Lagrangian multiplier panel unit root test
  • Stock prices

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