Daily variation and predicting stock market returns for the frankfurter börse (stock market)

Abstract

In this article we test the random walk hypothesis in the German daily stock prices by means of a unit root test and the development of an ARIMA model for prediction. The results show that the time series of daily stock returns for a stratified random sample of German firms listed on the stock exchange of Frankfurt exhibit unit roots. Also, we find that one may predict changes in the returns to these listed stocks. These time series exhibit properties which are forecast able and provide the intelligent data analysts’ methods to better predict the directive of individual stock returns for listed German firms. The results of this study, though different from most other studies of other stock markets, indicate the Frankfurt stock market behaves in similar ways to North American, other European and Asian markets previously studied in the same manner.

First published online: 14 Oct 2010