Scandinavian Working Papers in Business Administration

Working Papers,
Hanken School of Economics

No 524: Short-Horizon Asymmetric Mean-Reversion and Overreactions: Evidence from the Nordic Stock Markets

Sofie Kulp-Tåg ()
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Sofie Kulp-Tåg: Swedish School of Economics and Business Administration, Postal: Arkadiankatu 22, P.O.B. 479; FIN 00101 Helsinki, Finland

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

25 pages, April 2, 2007

Price: 10

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524-978-951-555-951-7.pdf PDF-file

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