To read this content please select one of the options below:

Are stock prices stationary? Some new evidence from a panel data approach

Xin Shen (Department of Economics, University of Waikato, Hamilton, New Zealand)
Mark J. Holmes (Department of Economics, University of Waikato, Hamilton, New Zealand)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 30 September 2014

831

Abstract

Purpose

This paper investigates whether mean reversion holds for a panel of 16 OECD stock price indices for the period 1970 to 2011.

Design/methodology/approach

We employ seemingly unrelated regression (SUR)-based linear and non-linear unit root tests which are not only able to exploit the power of panel data analysis but also account for cross sectional dependencies as well as identify which panel members are stationary.

Findings

In contrast to a literature that offers mixed findings on stationarity, it was found that most of our sample is characterized as mean- or trend-reverting with approximated half-lives in the region of three to five years.

Originality/value

In contrast to other panel unit root tests of stock prices, the authors identify which individual panel members are stationary and non-stationary using a SURADF test. A further novelty of our approach is that we also develop a SUR-based panel KSS test that allows us to explore the possibility that stock prices exhibit non-linear stationarity.

Keywords

Acknowledgements

The authors are grateful for the helpful comments provided by an anonymous referee. Any remaining errors are the authors’ own.

Citation

Shen, X. and J. Holmes, M. (2014), "Are stock prices stationary? Some new evidence from a panel data approach", Studies in Economics and Finance, Vol. 31 No. 4, pp. 387-405. https://doi.org/10.1108/SEF-09-2012-0106

Publisher

:

Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

Related articles