VARIANCE RATIO TESTS OF THE RANDOM WALK IN THE LAC REGION
VARIANCE RATIO TESTS OF THE RANDOM WALK IN THE LAC REGION

Summary/Abstract: The global pandemic of 2020 (Covid-19) has affected the global economy and financial markets alike. In the light of these events, the aim of this essay is to test the hypothesis of an efficient market, in its weak form, in the main markets of the LAC Region, especially the stock markets of Argentina (MERVAL), Brazil (IBOVESPA), Chile (IPSA), Colombia (COLCAP), Mexico (BOLSAA MX), Peru (BVLAC) and the USA (DOW JONES), from 1 July 2019 to 20 October 2020. The results suggest the existence of mean-reversion and the rejection of the random walk hypothesis. In corroboration, DFA exponents show the presence of long memories in the Latin American and US stock markets. In conclusion, we consider that prices do not fully reflect available information and that price changes are not i.i.d. This has implications for investors, as some returns can be expected, creating opportunities for arbitrage and abnormal returns. These findings also open space for market regulators to take action to ensure better information in these regional markets.

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