IDEAS home Printed from https://ideas.repec.org/a/bla/reesec/v18y1990i2p207-226.html
   My bibliography  Save this article

Mean Reversions in GNMA Returns

Author

Listed:
  • Christopher K. Ma

Abstract

The random‐walk hypothesis is tested in the prices of mortgage‐backed securities traded in the secondary market. Using the variance ratio test, the random‐walk hypothesis is rejected for the daily GNMA bond return. We identify two components in the return series: a systematic component reflecting the market pricing on the expected information, and a noise term that represents the pricing on the unexpected information. After adjusting for the impact of bid‐ask spread and thin trading on the price quotations, the evidence suggests that the short‐horizon, weekly realized return, being dominated by the negative serial correlation of the random component, exhibits a mean‐reverting process. However, it is also found that the noise term demonstrates significant positive serial correlation for holding periods of over two weeks. Thus, for longer‐term returns, the realized return exhibits positive dependence. The implication is that the price of GNMA bonds did not react to unexpected information in a rational fashion in that the adjustment process is not instantaneous.

Suggested Citation

  • Christopher K. Ma, 1990. "Mean Reversions in GNMA Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(2), pages 207-226, June.
    • Handle: RePEc:bla:reesec:v:18:y:1990:i:2:p:207-226
    DOI: 10.1111/1540-6229.00518
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1540-6229.00518
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1540-6229.00518?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1987. "The Economic Consequences of Noise Traders," NBER Working Papers 2395, National Bureau of Economic Research, Inc.
    2. Roll, Richard, 1984. "A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-1139, September.
    3. Christopher K. Ma & William H. Dare & Darla R. Donaldson, 1990. "Testing rationality in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 10(2), pages 137-152, April.
    4. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ser‐Huang Poon, 1996. "Persistence and mean reversion in UK stock returns," European Financial Management, European Financial Management Association, vol. 2(2), pages 169-196, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bianchi, Robert J. & Drew, Michael E. & Fan, John Hua, 2016. "Commodities momentum: A behavioral perspective," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 133-150.
    2. Boudt, Kris & Raza, Muhammad Wajid & Wauters, Marjan, 2019. "Evaluating the Shariah-compliance of equity portfolios: The weighting method matters," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 406-417.
    3. Ian Martin, 2021. "On the Autocorrelation of the Stock Market [X-CAPM: An Extrapolative Capital Asset Pricing Model]," Journal of Financial Econometrics, Oxford University Press, vol. 19(1), pages 39-52.
    4. Fischer Black, 1988. "An Equilibrium Model of the Crash," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 269-276, National Bureau of Economic Research, Inc.
    5. Froot, Kenneth A. & Ito, Takatoshi, 1989. "On the consistency of short-run and long-run exchange rate expectations," Journal of International Money and Finance, Elsevier, vol. 8(4), pages 487-510, December.
    6. Baur, Robert Frederick, 1992. "Overreaction in futures markets," ISU General Staff Papers 1992010108000010973, Iowa State University, Department of Economics.
    7. Kassimatis, Konstantinos & Spyrou, Spyros & Galariotis, Emilios, 2008. "Short-term patterns in government bond returns following market shocks: International evidence," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 903-924, December.
    8. Takatoshi Ito & V. Vance Roley, 1988. "Intraday yen/dollar exchange rate movements: news or noise?," Research Working Paper 88-07, Federal Reserve Bank of Kansas City.
    9. Kenneth A. Froot & André F. Perold, 1995. "New trading practices and short‐run market efficiency," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 15(7), pages 731-765, October.
    10. Nawn, Samarpan & Banerjee, Ashok, 2019. "Do the limit orders of proprietary and agency algorithmic traders discover or obscure security prices?," Journal of Empirical Finance, Elsevier, vol. 53(C), pages 109-125.
    11. Aparicio, Felipe M., 1998. "Modelling adaptive complex behaviour with an application to the stock markets dynamics," DES - Working Papers. Statistics and Econometrics. WS 6284, Universidad Carlos III de Madrid. Departamento de Estadística.
    12. Jeff Madura & Nivine Richie, 2010. "Overreaction of Exchange-Traded Funds During the Bubble of 1998–2002," Chapters, in: Brian Bruce (ed.), Handbook of Behavioral Finance, chapter 5, Edward Elgar Publishing.
    13. Patricia Fraser & Ronald MacDonald, 1993. "The Efficiency of CAC Stock Price Forecasts : a Survey Based Perspective," Revue Économique, Programme National Persée, vol. 44(5), pages 991-1000.
    14. Ngene, Geoffrey & Tah, Kenneth A. & Darrat, Ali F., 2017. "Long memory or structural breaks: Some evidence for African stock markets," Review of Financial Economics, Elsevier, vol. 34(C), pages 61-73.
    15. Yoon, Byung-Sam & Brorsen, B. Wade, 2005. "Can Multiyear Rollover Hedging Increase Mean Returns?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 37(1), pages 65-78, April.
    16. Shyh-Wei Chen, 2008. "Non-stationarity and Non-linearity in Stock Prices: Evidence from the OECD Countries," Economics Bulletin, AccessEcon, vol. 3(11), pages 1-11.
    17. Nam, Kiseok & Pyun, Chong Soo & Kim, Sei-Wan, 2003. "Is asymmetric mean-reverting pattern in stock returns systematic? Evidence from Pacific-basin markets in the short-horizon," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(5), pages 481-502, December.
    18. Senn, Erik-Jan, 2020. "Measuring the Impact of MiFID II on Information Asymmetries Using Microstructure Models," Junior Management Science (JUMS), Junior Management Science e. V., vol. 5(2), pages 197-208.
    19. Neely, Christopher J. & Weller, Paul, 2000. "Predictability in International Asset Returns: A Reexamination," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(4), pages 601-620, December.
    20. Mohamed Es-Sanoun & Jude Gohou & Mounir Benboubker, 2023. "Testing of Herd Behavior In african Stock Markets During COVID-19 Pandemic [Essai de vérification du comportement mimétique dans les marchés boursiers africains au cours de la crise de covid-19]," Post-Print hal-04144289, HAL.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:reesec:v:18:y:1990:i:2:p:207-226. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/areueea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.