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Mean Reversion in Stock Prices: New Evidence from Panel Unit Root Tests for Seventeen European Countries

Author

Listed:
  • Paresh Narayan

    (Department of Accounting, Finance and Economics, Griffith University)

  • Arti Prasad

    (School of Economics, the University of the South Pacific)

Abstract

There is a large and growing literature that investigates evidence for mean reversion in stock prices. Empirically, there is no consensus as to whether stock prices are mean reverting or random walk processes at best, the results are mixed. In this paper, we provide further evidence on the mean reversion hypothesis for seventeen European countries using the Levin and Lin (1992), seemingly unrelated regression and the multivariate augmented Dickey-Fuller panel unit root tests. Our main finding is that stock prices of all seventeen European countries are characterised by a unit root, consistent with the efficient market hypothesis.

Suggested Citation

  • Paresh Narayan & Arti Prasad, 2007. "Mean Reversion in Stock Prices: New Evidence from Panel Unit Root Tests for Seventeen European Countries," Economics Bulletin, AccessEcon, vol. 3(34), pages 1-6.
    • Handle: RePEc:ebl:ecbull:eb-06c20083
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    References listed on IDEAS

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    Cited by:

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    7. Kauko, Karlo, 2010. "The feasibility of through-the-cycle ratings," Bank of Finland Research Discussion Papers 14/2010, Bank of Finland.
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    13. Siow-hooi Tan & Muzafar-shah Habibullah & Roy-wye-leong Khong, 2010. "Non-linear unit root properties of stock prices: Evidence from India, Pakistan and Sri Lanka," Economics Bulletin, AccessEcon, vol. 30(1), pages 274-281.
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    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • G0 - Financial Economics - - General

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