The impact of mean reversion model on portfolio investment strategies: Empirical evidence from emerging markets

Yasemin Deniz Akarim and Serafettin Sevim

Economic Modelling, 2013, vol. 31, issue C, 453-459

Abstract: Investors use mean reversion model to make decisions on which stocks should be taken in their portfolios according to their mean values. The first goal of the paper is to test the validity of the mean reversion model in emerging markets. Second, it aims to determine the best portfolio investment strategy on the validity of the mean reversion model. As a result of panel regression analysis, we find that the mean reversion model is valid in all of the emerging countries in the sample. This result implies that emerging markets are not efficient even in weak form. On the validity of the mean reversion model, we find that Max3–Min3 portfolio has recorded the best performance and contrarian portfolio is the best portfolio investment strategy. The paper makes contribution to the literature in terms of providing the information about which portfolio investment strategy has the best performance on the validity of the mean reversion model.

Keywords: Mean reversion; Emerging markets; Portfolio strategies; Panel data analysis (search for similar items in EconPapers)
JEL-codes: C22 G14 G15 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:31:y:2013:i:c:p:453-459

DOI: 10.1016/j.econmod.2012.11.028

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