The Martingale hypothesis in the Mexican stock market

Authors

  • Nadiezhda de la Uz Instituto Tecnológico y de Estudios Superiores de Monterrey

DOI:

https://doi.org/10.24201/ee.v17i1.197

Keywords:

Martingala hypothesis, Martingala, stock market, Mexico

Abstract

We examine the martingale hypothesis for the Mexican stock market during the period 1993 - 2000. This research includes 97% of all securities with medium and high trading frequency. The proposed tests are robust when dealing with non normal and heteroskedastic data. The tests use the fact that the variances from continuously compounded returns are lineal in time. The hypothesis is not rejected for the main Mexican stock indexes (the IPC and the INMEX). For individual stocks we find that in 70% of the examined cases, the hypothesis is not rejected. Finally, we include proofs of long- range independence, which are required for the derivation of the relevant statistics.

Metrics

Metrics Loading ...

References

Basu, P. y M. Morey (1999). “Trade Liberation and the Bahavior of Emerging Stock Markets Prices”. Social Science Research Network, http://www.ssrn.com.

Black, F. y M. Scholes (1973). “The Pricing of Options and Corporate Liabilities”, Journal of Political Ecoonomy, núm 81, pp. 637-654.

Cabello, A. (1999). Globalización y liberación financiera y la Bolsa Mexicana de Valores, Del auge a la crisis. P y V, México.

Campbell, J. Y., A. W. Lo y A. C. MacKinlay (1997). The Econometrics of Financial Markets, Princeton University Press, New Jersey.

Estrada J. (1999). “Random Walks and the Temporal Dimension of Risk”, Social Science Research Network, http://www.ssrn.com.

Fama, E. (1997). “Market Efficiency, Long-Term Returns, and Behavioral Finance”, Social Science Research Network, http://www.ssrn.com.

Fama, E. (1991). “Efficient Capital Markets: II”, The Journal of Finance, vol. XLVI, núm. 5, pp. 1575-1617.

Fama, E. (1970). “Efficient Capital Markets: A Review of Theory and Empirical Work”, Journal of Finance, 25, pp. 383-417.

Feller, W. (1951). “The Asymptotic Distributions of the Range of Sums of Independent in Common Stock Returns”, Annals of Mathematical Statistics, núm. 22, pp. 427-432.

Francis, A. (1995). “Option Pricing and the Martingale Restriction”, The Review of Financial Studies, vol. 8, núm. 4, pp. 1091-1124.

Greene, M. T. y B. D. Fielitz (1977). “Long-term Dependence in Common Stock Returns”, Journal of Financial Economics, núm. 4, pp. 339-349.

Grieb, T. y M. G. Reyes (1999). “Random Walks Tests for Latin American Equity Indexes and Individual Firms”, Journal of Financial Research, vol. 22, núm. 4, pp. 371-383.

Haugen, R., E. Ortiz y E. Arjona (1985). “Market Efficiency: México vs. the US”, The Journal of Portafolio Management, Fall, pp. 28-32.

Henker, T. y H. B. Kazemi (1999). “The Impact of Deviations from Random Walk in Security Prices on Option Prices”, Social Science Research Network, http://www.ssrn.com.

Huang, B. N. (1995). “Do Asian Stock Market Prices Follow Random Walks? Evidence from the Variance Ratio Test”, Applied Financial Economics, núm. 5, pp. 251-256.

Hurst, H. (1951). “Long Term Storage Capacity of Reservoirs”, Transaction of the American Society of Civil Engineers, núm. 116, pp. 770-799.

Le Roy, S. F. (1989). “Efficient Capital Markets and Martingales”, Journal of Economic Literature, vol. XXVII, pp. 1583-1621.

Le Roy, S. F. (1973). “Risk Aversion and the Martingale Property of Stock Prices”, International Economic Review, núm. 14, pp. 436-446.

Lo, A. W. y A. C. MacKinlay (1999). A Non Random Walk Down Wall Street, Princeton University Press, New Jersey.

Lo, A. W. y A. C. MacKinlay (1990). “An Econometric Analysis of Nonsyncronous Trading”, Juornal of Econometrics, núm. 45, pp. 181-212.

Lo, A. W. y A. C. MacKinlay (1989). “The Size and Power of the Variance Ratio Test in Finite Samples”, Journal of Econometrics, núm. 40, pp. 203-238.

Lo, A. W. y C. Mackinlay (1988). “Stockmarket Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test”, Review of Financial Studies, núm. 1, pp. 41-66.

Lo, A. W. (1991). “Long-Term Memory in Stock Market Prices”, Econometrica, núm. 59, pp. 1279-1313.

Long, M., J. Payne y Feng Jang (1999). “Information Transmission in the Shangai Equity Market”, The Journal of Financial Research, Spring, pp. 29-45.

Longstaff F. A. (1995). “Option Pricing and the Martingale Restriction”, The Review of Financial Studies, vol. 8, núm. 4, pp. 1091-1124.

Malkiel, B. G. (1997). A Random Walk Down Wall Street, W. W. Norton & Company, Inc.

Malkiel, B. G. (1992). “Efficient Market Hypothesis”, en P. Newman, M. Milgate y J. Eatwell (comps.), New Palgrave Dictionary of Money and Finance, MacMillan, Londres.

Mandelbrot, B. B. y J. Wallis (1968). “J. R. Noah, Joseph and Operational Hidrology”, Water Resources Research, núm. 4, pp. 909-918.

Mandelbrot B. (1972). “Statistical Methodology for Nonperiodic Cycles from the Covariance to R/S Analysis”, Annals of Economic and Social Measurement, núm. 1, pp. 259-290.

Ojah y D. Karemera (1999). “Random Walks and Market Efficiency Tests of Latin American Emerging Equity Markets: A Revisit”, The Financial Review, vol. 34, núm.2, pp. 57-72.

Ortiz, E. (1980). “Caminata al azar en México: La importancia y eficiencia de la bolsa mexicana de valores”, UNAM, México.

Phillips, P. C. B. y P. Perron (1988). “Testing for a Unit Root in Time Series Regression”, Biometrika, núm. 75, pp. 335-346.

Poterba, J. M. y L. H. Summers (1988). “Mean Reversion in Stock Prices”, Journal of Financial Economics, núm. 22, pp. 27-59.

Roberts, H. (1967). Statistical versus Clinical Prediction of the Stock Market, Center for Research in Security Prices, University of Chicago (mimeo).

Samuelson, P. (1965). “Proof that Properly Anticipated Prices Fluctuate, Randomly Industrial Management Review, núm. 6, pp. 41-49.

Taqqu, M. S., W. Willinger y V. Teverovsky (1999). “Stock Market Prices and Long-Range Dependence”, Finance and Stochastics, núm. 3, pp. 1-13.

Urrutia, J. L. (1995). “Test of Random Walks and Market Efficiency for Latin American Emerging Equity Markets”, The Journal of Financial Research, núm. 18, pp. 299-309.

Vega, F. et al. (2000). El mercado mexicano de dinero, capitales y productos derivados, sus instrumentos y sus usos, vol. 1, Eón, México.

White, H. (1984). Asymptotic Theory for Econometricians, Academic Press, San Diego.

White, H. y I. Domovitz (1984). “Nonlinear Regression with Dependent Observations”, Econometrica, núm. 52, pp. 143-162.

Published

2002-01-01

How to Cite

de la Uz, N. (2002). The Martingale hypothesis in the Mexican stock market. Estudios Económicos De El Colegio De México, 17(1), 91–127. https://doi.org/10.24201/ee.v17i1.197