On fractional integrating dynamics in the US stock market

This paper extends the work in [Serletis Apostolos, Shintani Mototsugu. No Evidence of Chaos but Some Evidence of Dependence in the US Stock Market. Chaos, Solitons & Fractals 2003;17:449–54] by re-examining the empirical evidence for random walk type behavior in the US stock market, using daily observations on the Dow Jones industrial average (from January 3, 1928 to March 15, 2006). In doing so, it tests for fractional integrating dynamics utilizing a new semiparametric wavelet-based estimator. We find no evidence of fractional integration and cannot reject the null hypothesis that the return process is integrated of order zero, meaning that the (log) price process contains a unit root (with drift).