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Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets

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  • Shu-Ling Chen
  • Hyeongwoo Kim

Abstract

This paper seeks empirical evidence of nonlinear mean-reversion in relative national stock price indices for Emerging Asian countries. It is well known that conventional linear unit root tests suffer from low power against the stationary nonlinear alternative. Implementing the nonlinear unit root tests proposed by Kapetanios et al. (2003) and Cerrato et al. (2009) for the relative stock prices of Emerging Asian markets, we find strong evidence of nonlinear mean reversion, whereas linear tests fail to reject the unit root null for most cases. We also report some evidence that stock markets in China and Taiwan are highly localized.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/10168737.2011.580569
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 25 (2011)
Issue (Month): 2 ()
Pages: 239-250

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Handle: RePEc:taf:intecj:v:25:y:2011:i:2:p:239-250

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Related research

Keywords: Linear unit root test; nonlinear unit root test; nonlinear panel unit root test; international relative stock prices;

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References

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  3. Mario Cerrato & Christian de Peretti & Nick Sarantis, 2008. "A Nonlinear Panel Unit Root Test under Cross Section Dependence," Working Papers 2008_08, Business School - Economics, University of Glasgow.
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Cited by:
  1. Hyeongwoo Kim & Deockhyun Ryu, 2013. "Measuring the Speed of Convergence of Stock Prices: A Nonparametric and Nonlinear Approach," Auburn Economics Working Paper Series auwp2013-06, Department of Economics, Auburn University.

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