A GARCH Model for Testing Market Efficiency

Research output: Contribution to specialist publication or newspaperSpecialist publication article


In this paper we propose a generalised autoregressive conditional heteroskedasticity (GARCH) model-based test for a unit root. The model allows for two endogenous structural breaks. We test for unit roots in 156 US stocks listed on the NYSE over the period 1980 to 2007. We find that the unit root null hypothesis is rejected in 40% of the stocks, and only in four out of the nine sectors the null is rejected for over 50% of stocks. We conclude with an economic significance analysis, showing that mostly stocks with mean reverting prices tend to outperform stocks with non-stationary prices.


Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics


  • Unit Root, Structural Break, Efficient Market Hypothesis, Stock Price, GARCH
Original languageEnglish
Specialist publication or newspaperJournal of International Financial Markets, Institutions, and Money
Publication statusPublished - 2016
Publication categoryPopular science