Are Stock Returns Time Reversible? International Evidence from Frequency Domain Tests
14 Pages Posted: 24 Dec 2008
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: Suggested Citation
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