Fit Hang Seng Index for 21st Century with Random Walk Model

The Hang Seng index is an important indicator not only for the Hong Kong stock market but also the health of economy in Hong Kong. Because Hang Seng index shows the stochastic characteristic, studies were conducted to investigate whether the Hang Seng index follows the random walk pattern using statistical tests. An effective and efficient way to determine whether the Hang Seng Index follows the random walk pattern is to use the random walk model to fit the Hang Seng index. In this study, we apply the random walk model to fit the Hang Seng index for five different periods of the 21th century. The results show that the random walk model can somewhat fit the Hang Seng Index for a short period of time, but the fitting becomes worse as the period prolongs.