By means of Monte Carlo experiments using the weighted bootstrap, we
evaluate the size and power properties in small samples of Chow and Denning’s [1]
multiple variance ratio test and the automatic variance ratio test of Choi [2].
Our results indicate that the weighted bootstrap tests exhibit desirable size
properties and substantially higher power than corresponding conventional
tests.
References
[1]
Chow, V. and Denning, K. (1993) A Simple Variance Ratio Test. Journal of Econometrics, 58, 385-401.
http://dx.doi.org/10.1016/0304-4076(93)90051-6
[2]
Choi, I. (1999) Testing the Random Walk Hypothesis for Real Exchange Rates. Journal of Applied Econometrics, 14, 293-308. http://dx.doi.org/10.1002/(SICI)1099-1255(199905/06)14:3<293::AID-JAE503>3.0.CO;2-5
[3]
Bachelier, L. (1900) Theorie de la speculation. Annales scientifiques de l’école normale supérieure, 17, 21-86.
[4]
Cootner, P.H. (1964) The Random Character of Stock Market Prices. MIT Press, Cambridge.
[5]
Samuelson, P. (1965) Proof That Properly Anticipated Prices Fluctuate Randomly. Industrial Management Review Spring, 6, 41-49.
[6]
Fama, E. (1970) Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25, 383-417. http://dx.doi.org/10.2307/2325486
[7]
Lo, A. and MacKinlay, A. (1988) Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test. The Review of Financial Studies, 1, 41-66. http://dx.doi.org/10.1093/rfs/1.1.41
[8]
Wright, J. (2000) Alternative Variance-Ratio Tests Using Ranks and Signs. Journal of Business and Economic Statistics, 18, 1-9.
[9]
Belaire-Franch, J. and Contreras, D. (2004) Rank and Sign Based Multiple Variance Ratio Tests. Working Paper, Department of Economic Analysis, University of Valencia.
[10]
Cochrane, J.H. (1988) How Big Is the Random Walk in GNP? Journal of Political Economy, 96, 893-920.
http://dx.doi.org/10.1086/261569
