Mean reversion in international stock markets: An empirical analysis of the 20th century

Laura Spierdijk, Jacob Bikker () and Pieter van den Hoek

Journal of International Money and Finance, 2012, vol. 31, issue 2, 228-249

Abstract: This paper analyzes mean reversion in the stock markets of 18 OECD countries during the years 1900–2009. In this period it takes stock prices about 18.5 years, on average, to absorb half of a shock. However, using a rolling-window approach we establish large fluctuations in the speed of mean reversion over time. The highest mean reversion speed is found for the period including the Great Depression and the start of World War II. Furthermore, the early years of the Cold War and the period containing the Oil Crisis of 1973, the Energy Crisis of 1979 and Black Monday in 1987 are also characterized by relatively fast mean reversion. We document half-lives ranging between 2.0 and 22.6 years. Our results suggest that the speed at which stocks revert to their fundamental value is higher in periods of high economic uncertainty, caused by major economic and political events.

Keywords: Mean reversion; Stock prices; Panel unit root test; Market efficiency (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (41)

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Working Paper: Mean Reversion in International Stock Markets: An Empirical Analysis of the 20th Century (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:2:p:228-249

DOI: 10.1016/j.jimonfin.2011.11.008

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