Persistence and mean reversion in UK stock returns

Ser-Huang Poon

European Financial Management, 1996, vol. 2, issue 2, 169-196

Abstract: This paper re‐examines the issue of persistence and mean reversion in UK stock returns in the light of new developments published in Chow and Denning (1993) the random walk hypothesis is tested using multiple variance ratios for returns on the Financial Times All Share Index and 330 individual stocks for the period January 1965 to June 1994. There is no evidence of reversion in the UK stock market. Persistence only exists in high frequency data and is less strong in more recent times. Moreover, it is a portfolio phenomenon and is related to firm size. There is a possibility that persistence/reversion is also industry‐related.

Date: 1996
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