Random walk versus breaking trend in stock prices: Evidence from emerging markets

Kausik Chaudhuri, Yangru Wu

Research output: Contribution to journalArticlepeer-review

187 Scopus citations


This paper investigates whether stock-price indexes of seventeen emerging markets can be characterized as random walk (unit root) or mean reversion processes. We implement a test that can account for structural breaks in the underlying series and is more powerful than standard tests. We find that for fourteen countries, stock prices exhibit structural breaks. Furthermore, for ten countries, the null hypothesis of a random walk can be rejected at the one or 5% significance level. Our results indicate that ignoring structural breaks that arise from the liberalization of emerging markets can lead to incorrect inference that these indices are characterized by random walks, and are consistent with the points made by Bekaert et al. [J. Int. Money Finan. 21 (2002) 295]. Our findings hold true regardless of whether stock indexes are denominated in US dollar terms, in local currencies terms, or in real terms.

Original languageEnglish (US)
Pages (from-to)575-592
Number of pages18
JournalJournal of Banking and Finance
Issue number4
StatePublished - Apr 1 2003

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


  • Emerging markets
  • Market liberalization
  • Random walk
  • Structural breaks


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