Working Papers, Hanken School of Economics
No 524:
Short-Horizon Asymmetric Mean-Reversion and Overreactions: Evidence from the Nordic Stock Markets
Sofie Kulp-Tåg ()
Abstract: This paper examines the asymmetric behavior of conditional
mean and variance. Short-horizon mean-reversion behavior in mean is modeled
with an asymmetric nonlinear autoregressive model, and the variance is
modeled with an Exponential GARCH in Mean model. The results of the
empirical investigation of the Nordic stock markets indicates that negative
returns revert faster to positive returns when positive returns generally
persist longer. Asymmetry in both mean and variance can be seen on all
included markets and are fairly similar. Volatility rises following
negative returns more than following positive returns which is an
indication of overreactions. Negative returns lead to increased variance
and positive returns leads even to decreased variance.
Keywords: asymmetric mean-reversion; overreactions; nonlinearity; exponential GARCH in mean; Nordic stock markets; (follow links to similar papers)
25 pages, April 2, 2007
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