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.
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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
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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
- 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
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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, Korean International Economic Association, vol. 25(2), pages 239-250.
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