The behaviour of some UK equity indices: An application of Hurst and BDS tests 1 A previous version

The characterisation of equity market return series as random in nature has been questioned in recent times by the application of new statistical tools. This study uses recent advances in chaos theory to examine the behaviour of the London Financial Times Stock Exchange (FTSE) All Share, 100, 250 and 350 equity indices. The results reject the hypothesis that the index series examined in this study are random, independent and identically distributed. The results show that the FTSE stock index returns series is not truly random since some cycles or patterns show up more frequently than would be expected in a true random series. A Generalized Autoregressive Conditional Heteroskedasticity (GARCH(1,1)) process appears to explain the behaviour of the index series. The results may have implications for derivative instruments on the indices as well as for weak form market efficiency.

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