Review of Economic Studies Vol. 58 No. 3 1991
Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence
open access
Abstract
This paper reexamines the empirical evidence for mean-reverting behavior in stock prices. Comparison of data before and after World War II shows that mean reversion is entirely a prewar phenomenon. Using randomization methods to calculate significance levels, the authors find that the full sample evidence for mean reversion is weaker than previously indicated by Monte Carlo methods under a normal assumption. Further, the switch to mean-averting behavior after the war is about to be too strong to be compatible with sampling variation. The authors interpret these findings as evidence of a fundamental change in the stock returns process.
- DOI
- 10.2307/2298009
- Volume
- 58
- Issue
- 3
- Pages
- 515
- Sources
- bibtex:phds-export.bib openalex crossref