Persistence and mean reversion: analyzing sector indices for Brazil

• Autor(es):

  Tabak, Benjamin Miranda (Banco Central do Brasil);

  Staub, Roberta Blass (Banco Central do Brasil).

• Fonte:

  Economia Aplicada; volume 10, número 2, páginas 193-201. Junho 2006.

• Assuntos:

  variance ratio;

  bootstrap;

  emerging markets;

  random walk hypothesis.

• Resumo:

  This paper contributes to the literature on testing the random walk hypothesis by examining a new data set for sector indices for the Brazilian equity market, and employing a joint variance ratio test with customized percentiles. The rejection of the random walk hypothesis has implications for both practitioners and academics as most asset pricing models assume this hypothesis and most practitioners search for patterns in asset’s price history (implicitly refuting the random walk hypothesis). Our paper suggests that we can price assets using this assumption, for the Brazilian equity market.

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