Document Type

Journal Article

Department/Unit

Department of Economics

Abstract

We develop some properties on the autocorrelation of the k-period returns for the general mean reversion (GMR) process in which the stationary component is not restricted to the AR(1) process but takes the form of a general ARMA process. We then derive some properties of the GMR process and three new nonparametric tests comparing the relative variability of returns over different horizons to validate the GMR process as an alternative to random walk. We further examine the asymptotic properties of these tests which can then be applied to identify random walk models from the GMR processes.

Publication Year

2006

Journal Title

Journal of Applied Mathematics and Decision Sciences

Volume number

2006

Publisher

Hindawi

First Page (page number)

1

Last Page (page number)

21

Referreed

1

DOI

10.1155/JAMDS/2006/12314

ISSN (print)

2090-3359

Link to Publisher’s Edition

http://dx.doi.org/10.1155/JAMDS/2006/12314

Copyright

Creative Commons Attribution License

Keywords

mean reversion, variance ratio test, random walk, stock price, stock return

Included in

Economics Commons

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