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Mean Reversion in Stock Prices: New Evidence from Panel Unit Root Tests for Seventeen European Countries

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  • Paresh Narayan

    ()
    (Department of Accounting, Finance and Economics, Griffith University)

  • Arti Prasad

    ()
    (School of Economics, the University of the South Pacific)

Abstract

There is a large and growing literature that investigates evidence for mean reversion in stock prices. Empirically, there is no consensus as to whether stock prices are mean reverting or random walk processes at best, the results are mixed. In this paper, we provide further evidence on the mean reversion hypothesis for seventeen European countries using the Levin and Lin (1992), seemingly unrelated regression and the multivariate augmented Dickey-Fuller panel unit root tests. Our main finding is that stock prices of all seventeen European countries are characterised by a unit root, consistent with the efficient market hypothesis.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 3 (2007)
Issue (Month): 34 ()
Pages: 1-6

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Handle: RePEc:ebl:ecbull:eb-06c20083

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  1. Jorge L. Urrutia, 1995. "Tests Of Random Walk And Market Efficiency For Latin American Emerging Equity Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, Southern Finance Association;Southwestern Finance Association, vol. 18(3), pages 299-309, 09.
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  7. Hiroyuki Kawakatsu & Matthew R. Morey, 1999. "An Empirical Examination Of Financial Liberalization And The Efficiency Of Emerging Market Stock Prices," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, Southern Finance Association;Southwestern Finance Association, vol. 22(4), pages 385-411, December.
  8. David E. Rapach, 2002. "Are Real GDP Levels Nonstationary? Evidence from Panel Data Tests," Southern Economic Journal, Southern Economic Association, Southern Economic Association, vol. 68(3), pages 473-495, January.
  9. Peter Huber, 1997. "Stock market returns in thin markets: evidence from the Vienna Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 7(5), pages 493-498.
  10. Jorion, Philippe & Sweeney, Richard J., 1996. "Mean reversion in real exchange rates: evidence and implications for forecasting," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(4), pages 535-550, August.
  11. Grieb, Terrance & Reyes, Mario G, 1999. "Random Walk Tests for Latin American Equity Indexes and Individual Firms," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, Southern Finance Association;Southwestern Finance Association, vol. 22(4), pages 371-83, Winter.
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Cited by:
  1. Siow-hooi Tan & Muzafar-shah Habibullah & Roy-wye-leong Khong, 2010. "Non-linear unit root properties of stock prices: Evidence from India, Pakistan and Sri Lanka," Economics Bulletin, AccessEcon, vol. 30(1), pages 274-281.
  2. Khurshid Kiani, 2010. "Predictable Signals in Excess Returns: Evidence from Non-Gaussian State Space Models," Economics Bulletin, AccessEcon, vol. 30(2), pages 1217-1232.
  3. repec:ebl:ecbull:v:30:y:2010:i:1:p:274-281 is not listed on IDEAS

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