Figure 7.1 shows the closing values D 0 , . . . , D 250 of the Dow Jones Index of stocks on the New…

Dow Jones and All Ordinaries Indices; DJAO2.TSM

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Figure 7.1 shows the closing valuesD0, . . . , D250 of the Dow Jones Index of stocks on the New York Stock Exchange and the closing values A0, . . . , A250 of the Australian All Ordinaries Index of Share Prices, recorded at the termination of trading on 251 successive trading days up to August 26th, 1994. (Because of the time difference between Sydney and New York, the markets do not close simultaneously in both places; however, in Sydney the closing price of the Dow Jones index for the previous day is known before the opening of the market on any trading day.) The efficient market hypothesis suggests that these processes should resemble random walks with uncorrelated increments. In order to model the data as a stationary bivariate time series we first re express them as percentage relative price changes or percentage

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