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Mean Reversion across National Stock Markets and Parametric Contrarian Investment Strategies

Author

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  • Ronald Balvers

    (West Virginia University,)

  • Yangru Wu

    (Rutgers University)

  • Erik Gilliland

    (West Virginia University,)

Abstract

For U.S. stock prices, evidence of mean reversion over long horizons is mixed, possibly due to lack of a reliable long time series. Using additional cross-sectional power gained from national stock index data of 18 countries during the period 1969 to 1996, we find strong evidence of mean reversion in relative stock index prices. Our findings imply a significantly positive speed of reversion with a half-life of three to three and one-half years. This result is robust to alternative specifications and data. Parametric contrarian investment strategies that fully exploit mean reversion across national indexes outperform buy-and-hold and standard contrarian strategies. Copyright The American Finance Association 2000.

Suggested Citation

  • 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, April.
  • Handle: RePEc:bla:jfinan:v:55:y:2000:i:2:p:745-772
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    References listed on IDEAS

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