Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence
AbstractRecent research based on variance ratios and multiperiod-return autocorrelations concludes that the stock market exhibits mean reversion in the sense that a return in excess of the average tends to be followed by partially offsetting returns in the opposite direction. Dividing history into pre-1926, 1926-46, and post-1946 subperiods, we find that the mean-reversion phenomenon is a feature of the 1926-46 period, but not of the post-1946 period which instead exhibits persistence of returns. Evidence for pre-1926 data is mixed. The statistical significance of test statistics is assessed by estimating their distribution using stratified randomization. Autocorrelations of multiperiod returns imply a forecast of future returns, which is presented for post-war three-year returns using 1926-46, full sample, and sequentially updated coefficient estimates. The correlation between actual and forecasted returns is negative in each case. We conclude that evidence of mean reversion in U.S. stock returns is substantially weaker than reported in the recent literature. If mean-reversion continues to be a feature of the stock market, then the experience of the past forty years has been an aberration.
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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2795.
Date of creation: Aug 1991
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Kim, Myung Jig & Nelson, Charles R & Startz, Richard, 1991. "Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence," Review of Economic Studies, Wiley Blackwell, vol. 58(3), pages 515-28, May.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
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.