Analysis of Austrian Stocks: Testing for Stability and Randomness.

This paper is concerned with subjecting two popular assumptions about the behavior of stock market prices to empirical tests: first, the random walk hypothesis developed by Bachelier (1900), Osborne (1959), and Mandelbrot (1963); second, the stable distributions hypothesis by Mandelbrot (1963) and Fama (1965). For this purpose, ten time series from the Vienna Stock Exchange were used. The first hypothesis was tested using both non-parametric and parametric methods. To obtain evidence with regard to the second hypothesis, a graphical procedure and statistical estimation on the basis of the empirical characteristic function were applied. On analysis of the authors' data, it turned out that, at least for the time period under consideration (1985-90), severe doubts are cast on the above assumptions.