This study utilises tests based on ranks and signs suggested by Wright (2000) in addition to the traditional variance ratio test to examine the behaviour of some UK Financial Times Stock Exchange (FTSE) stock indices. The results suggest that the null hypothesis of martingale difference behaviour of the index returns series examined in the study is rejected. The use of the nonparametric based variance ratio tests provide stronger evidence against the martingale difference behaviour than the conventional variance ratio tests, under conditions of both homoskedasticity and heteroskedasticity for the examined series. Moreover, the application of Wright’s variance ratio tests in a rolling window framework, indicates that the results for the FTSE returns are consistent neither with a linear AR assumption nor with the white noise hypothesis.
Review of Quantitative Finance and Accounting – Springer Journals
Published: Jan 1, 2005
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