Testing for unit root bilinearity in the Brazilian stock market |
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Authors: | Benjamin M Tabak |
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Institution: | Banco Central do Brasil, SBS Quadra 3, Bloco B, 9 andar. DF 70074-900, Brazil |
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Abstract: | In this paper a simple test for detecting bilinearity in a stochastic unit root process is used to test for the presence of nonlinear unit roots in Brazilian equity shares. The empirical evidence for a set of 53 individual stocks, after adjusting for GARCH effects, suggests that for more than 66%, the hypothesis of unit root bilinearity is accepted. Therefore, the dynamics of Brazilian share prices is in conformity with this type of nonlinearity. These nonlinearities in spot prices may emerge due to the sophistication of the derivatives market. |
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Keywords: | Bilinear unit root GARCH Equity prices Emerging markets Market efficiency |
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