Mean reversion in stock prices: evidence from emerging markets

Kausik Chaudhuri (Indira Gandhi Institute of Development Research, India)
Yangru Wu (Rutgers University and Shanghai Stock Exchange)

Managerial Finance

ISSN: 0307-4358

Publication date: 1 November 2003

Abstract

This paper investigates whether stock‐price indexes of emerging markets can be characterized as random walk (unit root) or mean reversion processes. We implement a panelbased test that exploits cross‐sectional information from seventeen emerging equity markets during the period January 1985 to April 2002. The gain in power allows us to reject the null hypothesis of random walk in favor of mean reversion at the 5 percent significance level. We find a positive speed of reversion with a half‐life of about 30 months. These results are similar to those documented for developed markets. Our findings provide an interesting comparison to existing studies on more matured markets and reduce the likelihood of earlier mean reversion findings as attributable to data mining.

Keywords

Citation

Chaudhuri, K. and Wu, Y. (2003), "Mean reversion in stock prices: evidence from emerging markets", Managerial Finance, Vol. 29 No. 10, pp. 22-37. https://doi.org/10.1108/03074350310768490

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Publisher

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MCB UP Ltd

Copyright © 2003, MCB UP Limited

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