Australian All Ordinaries Share Price Index Futures and Random Walks

Abstract

The study covers the period 16/3/83 to 31/12/87, using daily futures prices to provide descriptive statistics and statistical tests for a random walk. The study period falls naturally into two periods, the pre-crash and period including the 1987 crash. The random walk hypothesis provides a “rough” description of futures price changes in the pre-crash period but is rejected for the full period. Some indication of the effect of the 1987 crash period on share price index futures prices is demonstrated via descriptive statistics. Day in the week effects are isolated both in terms of variance and returns. The existence of these effects suggest that random walk is at best an imperfect description of price changes over time.

Keywords

SHARE PRICE FUTURES RANDOM WALK

Get full access to this article

View all access options for this article.

References

Black, F. , 1976, The pricing of commodity contracts, Journal of Financial Economics, 3, 167–179.

Clarke, P.K. , 1973, A subordinated stochastic process model with finite variance for speculative prices, Econometrica, 4, 1, 135–159.

Cooper, J.C.B. , 1982, World stock markets: some random walk tests, Applied Economics, 14, 515–531.

Cornell, B. , 1985, The weekly pattern in stock returns: cash versus futures: a note, The Journal of Finance, 40, 2, 583–588.

Fuller, W.A. , 1976, Introduction to Statistical Time Series (New York, John Wiley & Sons).

Granger, G.W.J. and A.P. Anderson , 1978, An Introduction to Bilinear Time Series Models (Gottingen, Germany, Vandenoeck & Ruprecht).

Granger, G.W.J. and P. Newbold , 1986, Forecasting Economic Time Series (London, Academic Press Inc.) 2nd Edition.

Jacobs, B.I. and K.N. Levy , 1988, Calendar anomalies: abnormal returns at calendar turning points, Financial Analysts Journal, 44, 6, 28–39.

Leroy, S.F. , 1982, Expectations models of asset prices: a survey of theory, The Journal of Finance, 37, 1, 185–217.

10.

Levy, H. and M. Sarnat , 1986, Capital Investment and Financial Decisions (Englewood Cliffs, NJ, Prentice Hall) 3rd Edition.

11.

Praetz, P.D. , 1969, Australian share prices and the random walk hypothesis, Australian Journal of Statistics, 11, 3, 123–139.

12.

Praetz, P.D. , 1979, Testing for a flat spectrum on efficient market price data, The Journal of Finance, 34, 3, 645–659.

13.

Samuelson, P. A. , 1965, Proof that properly anticipated prices fluctuate randomly, Industrial Management Review, 6, 3, 41–49.

14.

Taylor, S.J. , 1985, The behaviour of futures prices over time, Applied Economics, 17, 713–734.

15.

Taylor, S.J. , 1986, Modelling Financial Time Series (New York, John Wiley & Sons).

16.

Ziemba, W.T., undated, Seasonality effects in Japanese futures markets, Research Papers in International Business, Trade and Finance, Faculty of Commerce and Business Administration, University of British Columbia.