Measuring the Speed of Convergence of Stock Prices: A Nonparametric and Nonlinear Approach
AbstractThis paper evaluates the speed of convergence across national stock markets employing a nonlinear, nonparametric stochastic model of relative stock prices. We use operational algorithms for estimating general measures of persistence of the relative stock price that are based on two statistical notions: the short memory in mean (SMM) and the short memory in distribution (SMD). Using G7 countries¡¯ stock indices, we obtain strong empirical evidence in favor of the contrarian strategy for France, Germany, Italy, and the UK relative to the US market, while our results imply quite limited usefulness of the strategy for Canada and Japan. Further, we obtain fairly fast convergence rates toward the equilibrium for the former group.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2013-06.
Date of creation: Mar 2013
Date of revision:
Contact details of provider:
Postal: 0326 Haley Center, Auburn University, AL 36849-5049
Phone: (334) 844-4910
Fax: (334) 844-4615
Web page: http://cla.auburn.edu/economics/
More information through EDIRC
Speed of Convergence; Contrarian Strategy; Short Memory in Mean; Short-Memory in Distribution; mixing; Max Half-Life; Max Quarter-Life;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gallagher, Liam A & Taylor, Mark P, 2001. "Risky Arbitrage, Limits of Arbitrage, and Nonlinear Adjustment in the Dividend-Price Ratio," Economic Inquiry, Western Economic Association International, vol. 39(4), pages 524-36, October.
- Kim, Hyeongwoo, 2009. "On the usefulness of the contrarian strategy across national stock markets: A grid bootstrap analysis," Journal of Empirical Finance, Elsevier, vol. 16(5), pages 734-744, December.
- Deb, Partha & Sefton, Martin, 1996. "The distribution of a Lagrange multiplier test of normality," Economics Letters, Elsevier, vol. 51(2), pages 123-130, May.
- Chen, Shu-Ling & Kim, Hyeongwoo, 2008.
"Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets,"
18680, University Library of Munich, Germany, revised Nov 2009.
- Shu-Ling Chen & Hyeongwoo Kim, 2011. "Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets," International Economic Journal, Taylor & Francis Journals, vol. 25(2), pages 239-250.
- Sarno, Lucio & Taylor, Mark P. & Chowdhury, Ibrahim, 2004.
"Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study,"
Journal of International Money and Finance,
Elsevier, vol. 23(1), pages 1-25, February.
- Chowdhury, Ibrahim & Sarno, Lucio & Taylor, Mark P, 2002. "Non-Linear Dynamics in Deviations from the Law of One Price: A Broad-Based Empirical Study," CEPR Discussion Papers 3377, C.E.P.R. Discussion Papers.
- Ronald Balvers & Yangru Wu & Erik Gilliland, 2000. "Mean Reversion across National Stock Markets and Parametric Contrarian Investment Strategies," Journal of Finance, American Finance Association, vol. 55(2), pages 745-772, 04.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hyeongwoo Kim).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.