A Bayesian Inference Approach to Testing Mean Reversion in the Swedish Stock Market
In this paper we use a Bayesian approach to test for mean reversion in the Swedish stock market on monthly data 1918-1998. By simply account for the heteroscedasticty of the data with a two state hidden Markov model of normal distributions and taking estimation bias into account via Gibbs sampling we can find no support of mean reversion. This is a contradiction to previous result from Sweden. Our findings suggest that the Swedish stock market can be characterized by two regimes, a tranquil and a volatile, and within the regimes the stock market is random. This finding of randomness is in line with recent evidence for the U.S stock market.
|Date of creation:||03 Oct 2000|
|Date of revision:||30 Jan 2002|
|Contact details of provider:|| Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden|
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
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