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Abstract
The term MIST has been coined to describe the next tier of large emerging economies, namely Mexico, Indonesia, South Korea, and Turkey. This article reexamined whether the properties of mean reversion for stock prices held for the MIST emerging stock markets using the sample from April 2004 to April 2012. The authors utilized a panel unit test with Fourier transformation capable of taking multiple structural breaks into account to discover that MIST stock markets indeed follow a random walk process. This is consistent with the efficient market hypothesis, suggesting that historical information is not useful in predicting future prices in MIST stock markets.
Notes
1. Although the Bai-Perron structural test is an excellent individual unit root test capable of capturing structural variation, it does not consider the problem of cross-sectional dependence. Also, because structural variation often develops slowly it is more suitable to use the Fourier function for testing. The Bai-Perron panel structural test can only test for “all or nothing” results and cannot distinguish which series are stationary. Therefore we used the panel nonlinear ESTAR unit root test with a Fourier function and SPSM procedures for testing.