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Random walk or mean reversion

Author

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  • Risager, Ole

    (Department of Economics, Copenhagen Business School)

Abstract

This paper contributes to the growing literature on mean reversion in stock markets by examining a newly constructed Danish data set for the period 1922-95. Variance ratio tests clearly reject the random walk hypothesis at the 2-year horizon, that is, the riskiness of a 2- year investment is significantly less than twice the risk of a 1-year investment. Variance ratio tests for 3- and 4-year horizons are not significant under conventional significance levels, whereas autocorrelation tests of the joint hypothesis that there is departure from random walk at all horizons tend to reject the random walk hypothesis and support the mean reversion hypothesis.

Suggested Citation

  • Risager, Ole, 1998. "Random walk or mean reversion," Working Papers 07-1998, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:1998_007
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    Citations

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    Cited by:

    1. Graflund, Andreas, 2001. "Some Time Serial Properties of the Swedish Real Estate Stock Market, 1939-1998," Working Papers 2001:8, Lund University, Department of Economics.
    2. Nielsen, Steen & Olesen, Jan Overgaard, 2001. "Regime-Switching Stock Returns And Mean Reversion," Working Papers 11-2000, Copenhagen Business School, Department of Economics.
    3. Olesen, Jan Overgaard & Risager, Ole, 2000. "On The Predictability Of The Danish Equity Premium," Working Papers 05-2001, Copenhagen Business School, Department of Economics.
    4. Graflund, Andreas, 2001. "Are the Nordic Stock Markets Mean Reverting?," Working Papers 2001:15, Lund University, Department of Economics.
    5. Akarim, Yasemin Deniz & Sevim, Serafettin, 2013. "The impact of mean reversion model on portfolio investment strategies: Empirical evidence from emerging markets," Economic Modelling, Elsevier, vol. 31(C), pages 453-459.

    More about this item

    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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