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Revisiting Mean Reversion in the Stock Prices of Nine Transition Countries: Threshold Unit Root Test

Author Info

  • Guochen Pan

    ()

    (Department of Insurance and Actuarial Science, Economics and Management School of Wuhan University, CHINA)

  • Seng-Sung Chen

    ()

    (Department of Risk Management and Insurance, Feng Chia University, Taichung, TAIWAN.)

  • Tsangyao Chang

    ()

    (Department of Finance, Feng Chia University, Taichung, Taiwan.)

Abstract

In this study, we use the threshold unit root test proposed by Caner and Hansen (2001) to re-investigate the time-series properties of stock prices for the nine transition countries during the 2000.10 to 2010.11 period. The empirical results from our threshold unit test indicate that the null hypothesis of I(1) unit root in stock prices can not be rejected for any of these transition countries, with the exception of Estonia and Latvia two countries. Our results highlight the efficient market hypothesis does hold in these transition stock markets, with the exception of the Estonia and Latvia two stock markets.

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Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2012)
Issue (Month): 4 (December)
Pages: 56-67

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Handle: RePEc:rjr:romjef:v::y:2012:i:4:p:56-67
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Keywords: Mean Reversion; Stock Prices; Transition Countries; Threshold Unit Test;

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; Diffusion Processes
  • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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  1. Balvers, Ronald J. & Wu, Yangru, 2006. "Momentum and mean reversion across national equity markets," Journal of Empirical Finance, Elsevier, vol. 13(1), pages 24-48, January.
  2. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
  3. Brennan, Michael J & Cao, H Henry, 1997. " International Portfolio Investment Flows," Journal of Finance, American Finance Association, vol. 52(5), pages 1851-80, December.
  4. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November.
  5. Chaudhuri, Kausik & Wu, Yangru, 2003. "Random walk versus breaking trend in stock prices: Evidence from emerging markets," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 575-592, April.
  6. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
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