Chen, Shu-Ling and Kim, Hyeongwoo (2008): Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets.
Download (109kB) | Preview
This paper seeks empirical evidence of nonlinear mean-reversion in relative national stock price indices for Emerging Asian countries. It is well known that conventional linear unit root tests suffer from low power against the stationary nonlinear alternative. Implementing the nonlinear unit root tests proposed by Kapetanios, et al. (2003) and Cerrato, et al. (2009) for the relative stock prices of Emerging Asian markets, we find strong evidence of nonlinear mean reversion, whereas linear tests fail to reject the unit root null for most cases. We also report some evidence that stock markets in China and Taiwan are highly localized.
|Item Type:||MPRA Paper|
|Original Title:||Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets|
|Keywords:||Linear Unit Root Test; Nonlinear Unit Root Test; Nonlinear Panel Unit Root Test; International Relative Stock Prices|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
G - Financial Economics > G1 - General Financial Markets > G10 - General
|Depositing User:||Dr. Hyeongwoo Kim|
|Date Deposited:||17. Nov 2009 00:56|
|Last Modified:||13. Feb 2013 11:07|
Balvers, Ronald, Yangru Wu, and Erik Gilliland, (2000), “Mean Reversion across National Stock Markets and Parametric Contrarian Investment Strategy,” Journal of Finance, 55(2), April, 745-772.
Cerrato, Mario, Christian de Peretti, Rolf Larsson, and Nicholas Sarantis, (2009), “A Nonlinear Panel Unit Root Test under Cross Section Dependence,” Working Papers 2009_28, Department of Economics, University of Glasgow.
Chaudhuri, Kausik and Yangru Wu, (2004), “Mean Reversion in Stock Prices: Evidence from Emerging Markets,” Managerial Finance, 30, 22-37.
DeBondt, Werner F. M. and Richard Thaler, (1985), “Does the Stock Market Overreact?” Journal of Finance, 40(3), July, 793-805.
Dumas, Bernard, (1992), “Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World,” Review of Financial Studies, 5(2), 153-180.
Fama, Eugene F. and Kenneth R. French, (1988), “Permanent and Temporary Components of Stock Prices,” Journal of Political Economy, 96(2), 246-273.
Hall, Alastair, (1994), “Testing for a Unit Root in Time Series with Pretest Data-Based Model Selection,” Journal of Business and Economic Statistics, 12(4), October, 461-470.
Harris, Richard I., (1992), “Testing for Unit Roots Using the Augmented Dickey-Fuller Test: Some Issues Relating to the Size, Power and the Lag Structure of the Test,” Economics Letters, 38(4), April, 381-386.
Hasanov, Mübariz, (2007), “Is South Korea’s Stock Market Efficient? Evidence from a Nonlinear Unit Root Test,” Applied Economics Letters, 1-5.
Im, Kyung So, M. Hashem Pesaran, and Yongcheol Shin, (2003), “Testing for Unit Roots in Heterogeneous Panels,” Journal of Econometrics, 115(1), 53-74.
Kapetanios, George, Yongcheol Shin, and Andy Snell, (2003), “Testing for a Unit Root in the Nonlinear STAR Framework,” Journal of Econometrics, 112, 359-379.
Kasa, Kenneth, (1992), “Common Stochastic Trends in International Stock Markets,” Journal of Monetary Economics, 29(1), 95-124.
Kim, Hyeongwoo, (2009), “On the Usefulness of the Contrarian Strategy across National Stock Markets: A Grid Bootstrap Analysis,” Journal of Empirical Finance, 16, 734-744.
Kim, Myung Jig, Charles R. Nelson, and Richard Startz, (1991), “Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence,” Review of Economic Studies, 58, 515-528.
Lim, Kian-Ping and Venus Khim-Sen Liew, (2007), “Nonlinear Mean Reversion in Stock Prices: Evidence from Asian Markets,” Applied Financial Economics Letters, 3, 25-29.
McQueen, Grant, (1992), “Long-Horizon Mean-Reverting Stock Prices Revisited,” Journal of Financial and Quantitative Analysis, 27(1), March, 1-18.
Michael, Panos, A. Robert Nobay, David A. Peel, (1997), “Transaction Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation,” Journal of Political Economy, 105(4), August, 862-879.
Ng, Serena and Pierre Perron, (2001), “Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power,” Econometrica, 69(6), November, 1519-1554.
Pesaran, M. Hashem, (2007), “A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence,” Journal of Applied Econometrics, 22, 265-312.
Phillips, Peter C. B. and Donggyu Sul, (2003), “Dynamic Panel Estimation and Homogeneity Testing under Cross Section Dependence,” Econometrics Journal, 6(1), June, 217-260.
Poterba, James M. and Lawrence H. Summers, (1988), “Mean Reversion in Stock Prices: Evidence and Implications,” Journal of Financial Economics, 22(1), October, 27-59.
Richards, Anthony J., (1995), “Comovements in National Stock Market Returns: Evidence of Predictability, but Not Cointegration,” Journal of Monetary Economics, 36(3), 631-654.
Richardson, Matthew and James H. Stock, (1989), “Drawing Inferences from Statistics Based on Multi-Year Asset Returns,” Journal of Financial Economics, 25, 323-348.
Richardson, Matthew, (1993), “Temporary Components of Stock Prices: A Skeptic's View,” Journal of Business and Economic Statistics, 11(2), April, 199-207.
Taylor, Mark P., David A. Peel, and Lucio Sarno, (2001), “Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles,” International Economic Review, 42(4), November, 1015-1042.