Mean reversion versus random walk in Asian stock prices: evidence from multiple structural breaks

This paper examines whether Asian stock prices for 9 countries are trend stationary or follow a random walk process using the Zivot and Andrews (1992), Lumsdaine and Papell (1997) tests and monthly data (1987:12-2005:12). With one structural break test results provide evidence in favour of random walk hypothesis in 6 countries. Moreover, when two endogenously-determined structural breaks are considered, this hypothesis was rejected for the same 3 countries, suggesting a robust conclusion regarding the non-stationarity of stock prices world wide. In addition, the dates of structural break in most cases point to the Asian crisis in the period 1996-1998.