Nonlinear mean reversion in the G7 stock markets

Hyeongwoo Kim (), Liliana Stern and Michael L. Stern ()

Applied Financial Economics, 2009, vol. 19, issue 5, pages 347-355

Abstract: We utilize the nonlinear unit root tests proposed by Park and Shintani (2005) and find strong evidence of nonlinear mean reversion between a US stock index and the stock indices in France, Germany, Italy and the UK. We identified an inaction band where deviations of these international stock indices from the US stock index follow a unit root process. Outside the band, however, they exhibit strong mean reversion properties. We show that standard linear unit root tests are not able to detect nonlinear cointegration and will yield the erroneous conclusion that the stock indices are not cointegrated.

Date: 2009
References: Add references at CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/09603100802389007 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:taf:apfiec:v:19:y:2009:i:5:p:347-355

Ordering information: This journal article can be ordered from
http://www.tandf.co.uk/journals/subscription.asp

Access Statistics for this article

Applied Financial Economics is edited by Mark P. Taylor

More articles in Applied Financial Economics from Taylor and Francis Journals
Series data maintained by Michael McNulty ().