Permanent and temporary components of stock prices: a revisit

Seifu Zerihun and Fassil Fanta

International Journal of Economics and Business Research, 2014, vol. 8, issue 2, 161-174

Abstract: Our study revisits the seminal work of Fama and French (1988) on mean-reverting behaviour of stock prices. Since then, there are limited studies conducted to attest the results and the methodology implemented by the authors. We use an updated monthly data for the period ranging 1926-2008. As in Fama and French (1988), our findings support the U-shaped patterns of first-order autocorrelations of industries portfolio returns, which implies that stock prices have both random-walk and slowly decaying stationary components. However, the magnitude of the slopes and the time varying expected variance of three to five years return, average between 11 and 16%, decline considerably as compared to 1926-1985 sample period which average between 21 and 31%. The sub-period 1985-2008 has a weaker U-shaped pattern indicating that the stationary price components may be less important after 1985.

Keywords: stock prices; mean-reverting; market efficiency; Fama and French; stationary price; random walk. (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.inderscience.com/link.php?id=64119 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecbr:v:8:y:2014:i:2:p:161-174

Access Statistics for this article

More articles in International Journal of Economics and Business Research from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().