Are Stock Returns Time Reversible? International Evidence from Frequency Domain Tests

14 Pages Posted: 24 Dec 2008

See all articles by Kian-Ping Lim

Kian-Ping Lim

Universiti Malaya

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

Melvin Hinich

University of Texas at Austin - Applied Research Laboratories; University of Texas at Austin - Department of Government

Date Written: December 24, 2008

Abstract

This paper first introduces the trispectrum-based time reversibility test to complement its bispectrum counterpart introduced earlier in extant literature. Using these frequency domain tests, we then examine whether the returns series of major stock market indices in 48 countries are time reversible. The results consistently show that time irreversibility is the rule rather than the exception for stock market indices. Further investigation on the sources of time irreversibility by applying the bispectrum-based Gaussianity and linearity tests on the original returns series reveals that the rejections in most cases are due to nonlinearity. Implications of the findings are discussed in the paper.

Keywords: Time reversibility, Bispectrum, Trispectrum, Stock returns

JEL Classification: C12, G15

Suggested Citation

Lim, Kian-Ping and Brooks, Robert Darren and Hinich, Melvin, Are Stock Returns Time Reversible? International Evidence from Frequency Domain Tests (December 24, 2008). Available at SSRN: https://ssrn.com/abstract=1320165 or http://dx.doi.org/10.2139/ssrn.1320165

Kian-Ping Lim (Contact Author)

Universiti Malaya ( email )

Department of Economics
Faculty of Economics and Administration
Kuala Lumpur, 50603
Malaysia

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Melvin Hinich

University of Texas at Austin - Applied Research Laboratories ( email )

P.O. Box 8029
Austin, TX 78713-8029
United States
512-835-3278 (Phone)

HOME PAGE: http://www.gov.utexas.edu/hinich

University of Texas at Austin - Department of Government ( email )

College of Liberal Arts
1 University Station A1800
Austin, TX 78712
United States

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