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Journal of Applied Mathematics and Decision Sciences - Volume 2006 2006, Article ID 12314, 21 pages

Department of Finance & Decision Sciences, Hong Kong Baptist University, Hong Kong

Dental Public Health, The University of Hong Kong, Hong Kong

Department of Economics, Faculty of Arts & Social Sciences, National University of Singapore, 1 Arts Link, Singapore 117570

Received 13 June 2005; Revised 30 November 2005; Accepted 9 December 2005

Copyright © 2006 Kin Lam et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


We develop some properties on the autocorrelation ofthe k-period returns for the general mean reversion GMRprocess in which the stationary component is not restricted to theAR1 process but takes the form of a general ARMA process. Wethen derive some properties of the GMR process and three newnonparametric tests comparing the relative variability of returnsover different horizons to validate the GMR process as analternative to random walk. We further examine the asymptoticproperties of these tests which can then be applied to identifyrandom walk models from the GMR processes.

Autor: Kin Lam, May Chun Mei Wong, and Wing-Keung Wong



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