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Short-Horizon Asymmetric Mean-Reversion and Overreactions: Evidence from the Nordic Stock Markets

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Author Info
Kulp-Tåg, Sofie () (Swedish School of Economics and Business Administration)
Abstract

This paper examines the asymmetric behavior of conditional mean and variance. Short-horizon mean-reversion behavior in mean is modeled with an asymmetric nonlinear autoregressive model, and the variance is modeled with an Exponential GARCH in Mean model. The results of the empirical investigation of the Nordic stock markets indicates that negative returns revert faster to positive returns when positive returns generally persist longer. Asymmetry in both mean and variance can be seen on all included markets and are fairly similar. Volatility rises following negative returns more than following positive returns which is an indication of overreactions. Negative returns lead to increased variance and positive returns leads even to decreased variance.

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Paper provided by Hanken School of Economics in its series Working Papers with number 524.

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Length: 25 pages
Date of creation: 02 Apr 2007
Date of revision:
Handle: RePEc:hhb:hanken:0524

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Related research
Keywords: asymmetric mean-reversion; overreactions; nonlinearity; exponential GARCH in mean; Nordic stock markets;

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    Other versions:
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  14. Koutmos, Gregory, 1998. "Asymmetries in the Conditional Mean and the Conditional Variance: Evidence From Nine Stock Markets," Journal of Economics and Business, Elsevier, vol. 50(3), pages 277-290, May. [Downloadable!] (restricted)
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