NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test

Andrew W. Lo, A. Craig MacKinlay

NBER Working Paper No. 2168 (Also Reprint No. r1180)
Issued in February 1987
NBER Program(s):   ME

In this paper, we test the random walk hypothesis for weekly stock market returns by comparing variance estimators derived from data sampled at different frequencies. The random walk model is strongly rejected for the entire sample period (1962-1985) and for all sub-periods for a variety of aggregate returns indexes and size-sorted portfolios. Although the rejections are largely due to the behavior of small stocks, they cannot be ascribed to either the effects of infrequent trading or time-varying volatilities. Moreover, the rejection of the random walk cannot be interpreted as supporting a mean-reverting stationary model of asset prices, but is more consistent with a specific nonstationary alternative hypothesis.

download in pdf format
   (386 K)

download in djvu format
   (308 K)

email paper

This paper is available as PDF (386 K) or DjVu (308 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2168

Published: The Review of Financial Studies, Vol. 1, No. 1, pp. 41-66, (1988).

Users who downloaded this paper also downloaded these:
Poterba and Summers w2343 Mean Reversion in Stock Prices: Evidence and Implications
Lo and MacKinlay t0066 The Size and Power of the Variance Ratio Test in Finite Samples: A Monte Carlo Investigation
Shiller and Perron t0045 Testing the Random Walk Hypothesis: Power versus Frequency of Observation
Lo w2984 Long-term Memory in Stock Market Prices
Richardson and Stock w3335 Drawing Inferences From Statistics Based on Multi-Year Asset Returns
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us