Research on the Augmented Dickey-Fuller Test for Predicting Stock Prices and Returns
Zhichao Guo · Advances in Economics Management and Political Sciences · 2023
With the continuous accumulation of theoretical knowledge and progressive applied research, analyzing financial time series data gradually becomes everlasting research in modern days. The simpler Dickey-Fuller originally is a test commonly used in econo-metrics and finance to test the stationarity of financial time series data. Thereafter, simpler Dickey-Fuller is eventually extended to the augmented Dickey-Fuller test to examine the stationarity of financial time series data such as stock prices, returns, and so on. This paper mainly focuses on the utilization of the augment Dickey-Fuller test and tests the stationarity of stock prices and returns for Nike, and Amazon. Both the stock price which is non-stationary, and the return, which is stationary, illustrate that these two companies are market-efficient. Additionally, the paper provides plots of stock prices and returns for these two companies by executing Python code. The results from the augment Dickey-Fuller test not only verify the characteristics of these plots but also indicate that the augment Dickey-Fuller test is useful to predict stock price and return.