Do Investors Expect Mean Reversion in Asset Prices?

Patricia Fraser and Andrew J. McKaig

Journal of Business Finance & Accounting, 1999, vol. 26, issue 1‐2, 57-81

Abstract: We investigate the existence and source of equilibrium mean reversion in UK non‐financial and financial asset prices over the period 6 April, 1981, through 31 October, 1995. Our results indicate substantial expected transitory components in commodity and metals markets but report expected mean reversion for financial assets only at the near to maturity horizons. Implied cash flow yields appear to have a role in driving the mean reverting process particularly at short horizons while the role of interest rate movements varied across assets and across maturities. Our results reject the existence of a common risk premium across market term structures.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:26:y:1999:i:1-2:p:57-81

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