A Variance Ratio Test of the Behaviour of Some FTSE Equity Indices Using Ranks and Signs

A Variance Ratio Test of the Behaviour of Some FTSE Equity Indices Using Ranks and Signs 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

A Variance Ratio Test of the Behaviour of Some FTSE Equity Indices Using Ranks and Signs

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2005 by Springer Science + Business Media, Inc.
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-005-5328-3
Publisher site
See Article on Publisher Site

Abstract

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.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jan 1, 2005

References

  • The Random Walk Hypothesis in the Spanish Stock Market: 1980–1992
    Blasco, N.; Rio, C.; Santamaria, R.
  • Random Walks in World Money Rates
    Chou, N. T.; Dare, W. H.; Dukes, W.; Ma, C. K.
  • Conditional Heteroskedasticity and Global Stock Return Distributions
    Errunza, V.; Hogan, K.; Kini, O.; Padmanbhan, P.
  • A Variance Ratio Test of Random Walks in Foreign Exchange Rates
    Liu, C. Y.; He, J.
  • Are Long-Horizon Stock Returns Predictable? A Bootstrap Analysis
    Malliaropulos, D.

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