Random walk or mean reversion

Ole Risager
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Ole Risager: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark

No 07-1998, Working Papers from Copenhagen Business School, Department of Economics

Abstract: Abstract: This paper contributes to the growing literature on mean reversion in stock markets by examining a newly constructed Danish data set for the period 1922-95. Variance ratio tests clearly reject the random walk hypothesis at the 2-year horizon, that is, the riskiness of a 2- year investment is significantly less than twice the risk of a 1-year investment. Variance ratio tests for 3- and 4-year horizons are not significant under conventional significance levels, whereas autocorrelation tests of the joint hypothesis that there is departure from random walk at all horizons tend to reject the random walk hypothesis and support the mean reversion hypothesis.

Keywords: na (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Pages: 13 pages
Date: 1998-01-01
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Citations: View citations in EconPapers (5)

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