Random Walk or Stationarity With-Structural Break in Malaysian Stock Prices: An Empirical Note

Abstract

This note re-evaluates the random walk behaviour of the Malaysian stock prices using the Zivot and Andrews’ (1992) procedure that allows for a possible break in th series. As the conventional unit 00t tests tend to misinterpret th trend stationarity series with a structural break as a random walk process, allowance for the breakpoint in the specification of the tet seems sensible. In the model, the breakpoint i taken to be endogeneously determined by the data. The finding is tht the random walk behaviour in the Malaysian stock price index, and thus the hypothesis of market efficiency, is further supported in this alternative specification. In addition, it is found that the break inthe stochastic behaviour of the stock prices, in 1981 and 1984, is related to macroeconomic. factors that may be linked to external shocks.