Stationarity of Stock Return Series in Indian Capital Market (original) (raw)

European Journal of Scientific Research

Econometric models used in finance and commodity markets typically require the assumption that the data are stationary. Thus, the issue of stationarity has been studied at some length by economists and statisticians in the past decade. The stationarity is an essential property to define a time series process. A process is said to be covariancestationary or weak stationary, if its first and second moments are time invariant. A stationary process has the property to be mean reverting, i.e., it will fluctuate around its mean. Stationarity implies that no trend is observed in the time series. Stationary time series has wide applications in financial economics such as volatility modelling, testing market efficiency, cointegration and causality analysis. Thus, this paper attempts to measure the stationarity of stock return series in Indian capital market. The most wellknown stationarity tests, viz., the correlogram and unit root tests have been performed on the daily stock return series from Indian capital market over a period from January 1991 to August 2009 so as to include the periods of Asian Crisis of 1997, dot-com bust of 2001 and global financial crisis of 2008. The tests suggest the evidence of level stationarity of stock return series in Indian capital market over the sample period.

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