Purpose – There are several studies that investigate evidence for mean reversion in stock prices. However, there is no consensus as to whether stock prices are mean reverting or random walk (unit root) processes. The goal of this paper is to re-examine mean reversion in stock prices. Design/methodology/approach – The authors use five different panel unit root tests, namely the Im, Pesaran and Shin t-bar test statistic, the Levin and Lin test, the Im, Lee, and Tieslau Lagrangian multiplier test statistic, the seemingly unrelated regression test, and the multivariate augmented Dickey Fuller test advocated by Taylor and Sarno. Findings – The main finding is that there is no mean reversion of stock prices, consistent with the efficient market hypothesis. Research limitations/implications – One issue not considered by this study is the role of structural breaks. It may be the case that the efficient market hypothesis is contingent on structural breaks in stock prices. Future studies should model structural breaks. Practical implications – The findings have implications for econometric modelling, in particular forecasting. Originality/value – This paper adds to the scarce literature on the mean reverting property of stock prices based on panel data; thus, it should be useful for researchers.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 24 (2007) Issue (Month): 3 (September) Pages: 233-244 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF