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.

The random walk in the stock prices of 18 OECD countries

2016 ◽  
Vol 43 (4) ◽  
pp. 598-608
Author(s):  
Hassan Shirvani ◽  
Natalya V. Delcoure
Keyword(s):  
Unit Root ◽  
Stock Prices ◽  
Unit Roots ◽  
Oecd Countries ◽  
Unit Root Tests ◽  
Panel Unit Root Tests ◽  
Cross Sectional ◽  
Panel Unit Root ◽  
Content Type ◽  
Long Run

Purpose The purpose of this paper is to examine the presence of unit roots in the stock prices of 16 OECD countries. Design/methodology/approach Heterogeneous panel unit root tests developed by Im et al. (1997/2003) and Pesaran (2007). Findings Under the assumption of cross-sectional independence across the panel, the authors find no evidence of unit roots, thus failing to reject mean reversion in the stock prices for all the countries in the sample. However, under the assumption of cross-sectional dependence, an assumption borne out by the diagnostic test results, the authors find support for the presence of unit roots in the stock prices. Practical implications Thus, the use of more robust panel unit root tests seems to raise questions about the long-run predictability of the stock market, at least in the context of the OECD countries. Originality/value Thus, it seems that in the long run, an investment policy of buy and hold has still much to offer.

Considering nonlinearity and structural changes in the convergence of clean energy consumption: the case of OECD countries

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Veli Yilanci ◽  
Muhammed Sehid Gorus
Keyword(s):  
Energy Consumption ◽  
Unit Root ◽  
Energy Use ◽  
Clean Energy ◽  
Oecd Countries ◽  
Unit Root Tests ◽  
Panel Unit Root Tests ◽  
Stochastic Convergence ◽  
Panel Unit Root ◽  
Content Type

PurposeIn this study, we aim to test the stochastic convergence of per capita clean energy use in 30 OECD (Organization for Economic Co-operation and Development) countries for the period of 1965–2017.Design/methodology/approachThis study employed both linear and nonlinear panel unit root tests, and unlike other studies, this study allowed fractional values in addition to integer values for frequencies in the Fourier functions. Integer values of frequency indicate temporary breaks, while fractional values show permanent breaks.FindingsThe results of the linear panel unit root test indicate that clean energy use does not converge to group average for almost all OECD countries. However, the results of nonlinear panel unit root tests provide evidence that the stochastic convergence hypothesis of clean energy consumption cannot be rejected for most countries. This study does not find any evidence for stochastic convergence of clean energy use in Australia, Canada, Denmark, Ireland, Norway or Sweden. Therefore, the policies regarding clean energy are mandatory in these countries due to their effectiveness. This study also reveals that there are permanent structural breaks in the convergence process of clean energy consumption in approximately half of OECD countries.Originality/valueThis study considers temporary and permanent smooth structural shifts in addition to nonlinearity when testing the stationarity of clean energy consumption in a country i relative to the group average. This new method eliminates deficiencies of the previous panel data techniques. Thus, it provides more reliable results compared to existing literature.

The sustainability of trade accounts of the ASEAN-5 countries

2014 ◽  
Vol 7 (1) ◽  
pp. 51-65
Author(s):  
Olayeni Olaolu Richard ◽  
Aviral Kumar Tiwari
Keyword(s):  
Steady State ◽  
Unit Root ◽  
Unit Root Tests ◽  
Panel Unit Root Tests ◽  
Macroeconomic Policies ◽  
Panel Unit Root ◽  
Content Type ◽  
Long Run ◽  
Equilibrium Relationship ◽  
Cointegration Tests

Purpose – The present study aims to analyse the sustainability of the trade deficits in the Association of Southeast Asian Nations (ASEAN)-5 countries using panel framework during the period from 1965 to 2011. Design/methodology/approach – The paper applied a battery of first- and second-generation panel unit root tests and Pedroni's, Kao and Chiang's, Westerlund, and Di Iorio and Fachin cointegration tests to achieve the objective. Findings – The paper found the evidence of sustainable trade deficit in ASEAN-5 countries while utilizing panel unit root tests as well as panel cointegration tests. Research limitations/implications – The findings have important macroeconomic policies implication for ASEAN-5 countries that these policies had been effective in leading exports and imports to long-run steady-state equilibrium relationship among the ASEAN-5 countries. Originality/value – The main contribution of the paper is to show that the macroeconomic policies of ASEAN-5 countries had been effective in leading exports and imports to long-run steady-state equilibrium relationship. To the authors' best knowledge, in this area, this is the first study in the panel framework for ASEAN countries.

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