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Testing for Mean Reversion in Heteroskedastic Data II : Autoregression Tests Based on Gibbs-Sampling-Augmented Randomization

Author

Listed:
  • Kim, C-J
  • Nelson, C-R

Abstract

A decade ago Fama and French (1998) estimated that 40% variations in stock returns was predictable over horizons of 3-5 years, which they attributed to a mean reverting stationary component in prices. While it has been clear that the Depression and war years exert a strong influence on these estimates, it has not been clear whether the large returns of that period contribute to the information in the data or rather are a source of noise to be discounted in estimation. This paper uses the Gibbs-sampling-augmented randomization methodology to address the problem of heteroskedasticity in estimation of multi-period return autoregressions.

Suggested Citation

  • Kim, C-J & Nelson, C-R, 1997. "Testing for Mean Reversion in Heteroskedastic Data II : Autoregression Tests Based on Gibbs-Sampling-Augmented Randomization," Working Papers 97-07, University of Washington, Department of Economics.
    • Handle: RePEc:udb:wpaper:97-07
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    Keywords

    STATISTICS;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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