THE RANDOM-WALK OF STOCK-PRICES - EVIDENCE FROM A PANEL OF G-7 COUNTRIES

It seems that the random-walk property of stock prices is well establi shed. However, some studies argue that the mean reversion of the stock prices has its theoretical and empirical support and the conventional unit-root tests have weak power against stationary alternatives. This paper uses unit-root tests in panel data to re-examine the time-serie s properties of the stock prices as it is claimed that the method can increase the power of the tests substantially even with a small number of cross sections. The test result suggests that we cannot reject the random-walk hypothesis for G-7 country stock-price indices.