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Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets

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  • Chen, Shu-Ling
  • Kim, Hyeongwoo

Abstract

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.

Suggested Citation

  • Chen, Shu-Ling & Kim, Hyeongwoo, 2008. "Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets," MPRA Paper 18680, University Library of Munich, Germany, revised Nov 2009.
    • Handle: RePEc:pra:mprapa:18680
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    Cited by:

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    2. Caporale, Guglielmo Maria & Gil-Alana, Luis A. & You, Kefei, 2021. "Global and Regional Financial Integration in Emerging Asia: Evidence from Stock Markets," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 36(2), pages 185-202.
    3. Nartea, Gilbert V. & Valera, Harold Glenn A. & Valera, Maria Luisa G., 2021. "Mean reversion in Asia-Pacific stock prices: New evidence from quantile unit root tests," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 214-230.
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    5. Xin Shen & Mark J. Holmes, 2014. "Do Asia-Pacific stock prices follow a random walk? A regime-switching perspective," Applied Economics Letters, Taylor & Francis Journals, vol. 21(3), pages 189-195, February.
    6. Buckley, Winston S. & Long, Hongwei, 2015. "A discontinuous mispricing model under asymmetric information," European Journal of Operational Research, Elsevier, vol. 243(3), pages 944-955.

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    More about this item

    Keywords

    Linear Unit Root Test; Nonlinear Unit Root Test; Nonlinear Panel Unit Root Test; International Relative Stock Prices;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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