Mean reversion in G-7 stock prices: Further evidence from a panel stationary test with multiple structural breaks

2010 ◽  
Vol 80 (10) ◽  
pp. 2019-2025 ◽  
Author(s):  
Yang-Cheng Lu ◽  
Tsangyao Chang ◽  
Ken Hung ◽  
Wen-Chi Liu
Keyword(s):  
Stock Prices ◽  
Structural Breaks ◽  
Mean Reversion ◽  
Multiple Structural Breaks ◽  
Stationary Test ◽  
Panel Stationary Test

EXCHANGE RATE AND STOCK PRICE INTERACTION IN MAJOR ASIAN MARKETS: EVIDENCE FOR INDIVIDUAL COUNTRIES AND PANELS ALLOWING FOR STRUCTURAL BREAKS

2011 ◽  
Vol 56 (02) ◽  
pp. 255-277 ◽  
Author(s):  
HOOI HOOI LEAN ◽  
PARESH NARAYAN ◽  
RUSSELL SMYTH
Keyword(s):  
Exchange Rates ◽  
Granger Causality ◽  
Stock Prices ◽  
Stock Price ◽  
Structural Breaks ◽  
Structural Break ◽  
Cointegration Test ◽  
Asian Countries ◽  
Multiple Structural Breaks ◽  
Cointegrating Vector

This article examines the relationship between exchange rates and stock prices in eight Asian countries. We test for cointegration and Granger causality for both individual countries using the Gregory and Hansen cointegration test that accommodates a structural break in the cointegrating vector, and for a panel using the Westerlund panel Lagrange multiplier (LM) cointegration test that allows for multiple structural breaks in the level of the individual cointegrating equations. Our results for individual countries suggest that the only country for which exchange rates and stock prices are cointegrated over the entire period is Korea where there is a weak long-run unidirectional Granger causality running from exchange rates to stock prices. Employing the panel LM cointegration test with multiple structural breaks, we find that exchange rates and stock prices are not cointegrated. We conclude that for the eight Asian countries, exchange rates and stock prices primarily have only a contemporaneous effect on each other that is reflected in the short-run intertemporal comovements between these financial variables.

Mean reversion in stock prices: new evidence from panel unit root tests

2007 ◽  
Vol 24 (3) ◽  
pp. 233-244 ◽  
Author(s):  
Paresh Kumar Narayan ◽  
Seema Narayan
Keyword(s):  
Unit Root ◽  
Stock Prices ◽  
Structural Breaks ◽  
Mean Reversion ◽  
Efficient Market Hypothesis ◽  
Unit Root Tests ◽  
Panel Unit Root Tests ◽  
Test Statistic ◽  
Panel Unit Root ◽  
Content Type

PurposeThere are several studies that investigate evidence for mean reversion in stock prices. However, there is no consensus as to whether stock prices are mean reverting or random walk (unit root) processes. The goal of this paper is to re‐examine mean reversion in stock prices.Design/methodology/approachThe authors use five different panel unit root tests, namely the Im, Pesaran and Shin t‐bar test statistic, the Levin and Lin test, the Im, Lee, and Tieslau Lagrangian multiplier test statistic, the seemingly unrelated regression test, and the multivariate augmented Dickey Fuller test advocated by Taylor and Sarno.FindingsThe main finding is that there is no mean reversion of stock prices, consistent with the efficient market hypothesis.Research limitations/implicationsOne issue not considered by this study is the role of structural breaks. It may be the case that the efficient market hypothesis is contingent on structural breaks in stock prices. Future studies should model structural breaks.Practical implicationsThe findings have implications for econometric modelling, in particular forecasting.Originality/valueThis paper adds to the scarce literature on the mean reverting property of stock prices based on panel data; thus, it should be useful for researchers.

Nonlinear Mean Reversion in Stock Prices

CFA Digest ◽  
2008 ◽  
Vol 38 (4) ◽  
pp. 37-38
Author(s):  
Michael Kobal
Keyword(s):  
Stock Prices ◽  
Mean Reversion ◽  
Nonlinear Mean Reversion
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