THE RANDOM WALK OF STOCK PRICES: IMPLICATIONS OF RECENT NONPARA-METRIC TESTS

This paper applies six recently developed nonparametric tests of serial independence <p> to monthly US stock returns. Findings of previous studies based on the BDS test are sup-ported <p> since most of the new tests also reject the random walk hypothesis. Furthermore, <p> power properties of the new tests are compared with those of the BDS test. The latter has <p> much power against ARCH and GARCH alternatives whereas some of the more recent <p> tests are superior against other alternatives. Finally, the power study of this paper shows, <p> contrary to common belief, that ARCH and GARCH effects do not seem to explain rejec-tion <p> of the random walk.