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| Matei Demetrescu |
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| ''Panel unit root testing and the martingale difference hypothesis for German stocks'' |
| ( 2009, Vol. 29 No.3 ) |
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| Several panel unit root tests based on different ways to
account for cross-unit dependence are reviewed. The note then
illustrates the tests by checking whether the martingale
difference hypothesis is appropriate for stock prices on the
German stock market: according to the martingale difference
hypothesis, logarithmized stock prices follow an integrated
process without short-run dynamics. Compared with usual tests for
no autocorrelation, unit root tests do not require strong moment
conditions and can cope with stock returns series exhibiting infinite
kurtosis. Evidence against the martingale difference hypothesis is
found in a panel of 30 DAX stocks observed daily between 2004 and
2007. |
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| Keywords: Stock price behavior, Dickey-Fuller test, fractional integration,
cross-dependent panel, cross-correlation |
JEL: C3 - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions
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| Manuscript Received : Mar 18 2009 | | Manuscript Accepted : Jul 24 2009 |
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