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Mean Reversion Lessens Mean Blur: Evidence from the S&P Composite Index

Author

Listed:
  • Luigi Buzzacchi

    (Interuniversity Department of Regional and Urban Studies and Planning & FULL, Politecnico di Torino, Viale Mattioli 39, 10125 Torino, Italy)

  • Luca Ghezzi

    (Department of Integrated Business Management, Università Carlo Cattaneo, Corso Matteotti 22, 21053 Castellanza, Italy)

Abstract

This study makes use of a very long time series of the S&P Composite Index, checking once more that the rates of return benefit from aggregational normality. It performs unit root tests as well as elementary statistical tests that take advantage of normality. It finds that mean blur is not consistent with the hypothesis of random walk with constant parameters, because the means of the annual real rates of linear return can be estimated as usual. It gives further evidence that the rates of return on the S&P Composite Index are mean-reverting.

Suggested Citation

  • Luigi Buzzacchi & Luca Ghezzi, 2023. "Mean Reversion Lessens Mean Blur: Evidence from the S&P Composite Index," IJFS, MDPI, vol. 11(1), pages 1-13, January.
    • Handle: RePEc:gam:jijfss:v:11:y:2023:i:1:p:22-:d:1045692
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    References listed on IDEAS

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    1. James Nguyen & Wei-Xuan Li & Clara Chia-Sheng Chen, 2022. "Mean Reversions in Major Developed Stock Markets: Recent Evidence from Unit Root, Spectral and Abnormal Return Studies," JRFM, MDPI, vol. 15(4), pages 1-20, April.
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    4. Summers, Lawrence H, 1986. "Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
    5. Marco Corazza & A. G. Malliaris, 2005. "Multi-Fractality in Foreign Currency Markets," World Scientific Book Chapters, in: Economic Uncertainty, Instabilities And Asset Bubbles Selected Essays, chapter 11, pages 151-184, World Scientific Publishing Co. Pte. Ltd..
    6. Golez, Benjamin & Koudijs, Peter, 2018. "Four centuries of return predictability," Journal of Financial Economics, Elsevier, vol. 127(2), pages 248-263.
    7. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    8. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
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    Cited by:

    1. Luca Ghezzi, 2024. "Normal Asset Allocations and Their Statistical Properties," IJFS, MDPI, vol. 12(3), pages 1-14, July.
    2. Samuel Tabot Enow, 2024. "Investing in the long-term: an empirical approach," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 13(4), pages 537-541, June.
    3. Samuel Tabot Enow, 2023. "Investigating mean reversion in financial markets using Hurst Model," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 12(6), pages 197-201, September.

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