A Bayesian Inference Approach to Testing Mean Reversion in the Swedish Stock Market

Andreas Graflund ()
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Andreas Graflund: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

No 2000:8, Working Papers from Lund University, Department of Economics

Abstract: 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.

Keywords: Market efficency; variance ratio; Gibbs sampling; hidden markov Chains (search for similar items in EconPapers)
JEL-codes: C11 C15 G10 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2000-10-03, Revised 2002-01-30
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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