Testing for mean reversion in heteroskedastic data II: Autoregression tests based on Gibbs-sampling-augmented randomization

A decade ago Fama and French [Fama, E.G., French, K.R., 1988. Permanent and temporary components of stock prices. J. Political Econ. 96 (2) 246–273] estimated that 40% of variation in stock returns was predictable over horizons of 3–5 yr, 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. Extending the sample period to 1995, we find little evidence of mean reversion. Examining subsamples, only 1926–1946 provides any evidence of mean reversion, while the post war period is characterized by mean aversion. A test of structural change suggests that this difference between pre and post war periods is significant.     

The impact of mean reversion of bank profitability on post-merger performance in the banking industry

This research study examines the tendency for serial correlation in bank holding company profitability, finding significant evidence of reversion to the industry mean in profitability. The paper then considers the impact of mean reversion on the evaluation of post-merger performance of bank holding companies. The research concludes that when an adjustment is made for the mean reversion, post-merger results significantly exceed those of the industry in the first 5 years after the merger.     

Mean reversion in international stock markets: An empirical analysis of the 20th century

This paper analyzes mean reversion in the stock markets of 18 OECD countries during the years 1900–2009. In this period it takes stock prices about 18.5 years, on average, to absorb half of a shock. However, using a rolling-window approach we establish large fluctuations in the speed of mean reversion over time. The highest mean reversion speed is found for the period including the Great Depression and the start of World War II. Furthermore, the early years of the Cold War and the period containing the Oil Crisis of 1973, the Energy Crisis of 1979 and Black Monday in 1987 are also characterized by relatively fast mean reversion. We document half-lives ranging between 2.0 and 22.6 years. Our results suggest that the speed at which stocks revert to their fundamental value is higher in periods of high economic uncertainty, caused by major economic and political events.     

Random walk and efficiency tests in the Asia-Pacific foreign exchange markets: Evidence from the post-Asian currency crisis data

This paper empirically tests the random walk and efficiency hypothesis for 12 Asia-Pacific foreign exchange markets. The hypothesis is tested using individual as well as panel unit root tests and two variance-ratio tests. The study covers the high (daily) and medium (weekly) frequency post-Asian crisis spot exchange rate data from January 1998 to July 2007. The inferential outcomes do not differ substantially between the unit root tests and the variance-ratio tests when using daily data but differ significantly when using weekly data. With the daily data, both types of unit root tests identify unit root components for all the series and two variance-ratio tests provide the evidence of martingale behavior for majority of the exchange rates tested. With the weekly data, panel unit root tests identify unit root component for the exchange rates and, the unit root tests on a single series basis identify unit root component for 10 foreign exchange markets. However, the variance-ratio tests reject the martingale null for the majority of the exchange rates when using weekly data.     

Market development and market efficiency: evidence based on nonlinear panel unit root tests

This study tests the weak form market efficiency of 32 European stock markets. Utilizing monthly data from June 2006 to June 2017, six different, newly developed nonlinear panel root tests were applied in three different groups of European markets: Frontier, Emerging and Developed. The results show that there is a meaningful relationship between different levels of economic development and the weak form market efficiency. Considering the nonlinear structure of the stock market indices, use of linear models might lead to wrong conclusions regarding market efficiency. Using several nonlinear panel root tests, the results of this study shed more light on the true data generating process of the stock market indices and more appropriately model market efficiency.     

Nonlinear dynamic correlation between geopolitical risk and oil prices: A study based on high-frequency data

This study investigates the nonlinear dynamic correlations between geopolitical risk (GPR) and oil prices using nonlinear Granger causality and DCC-MVGARCH methods based on high-frequency data. The relationship between GPR and oil prices is found to have a complex nonlinear relationship rather than a simple linear one. Further, a bidirectional nonlinear Granger causality is found to consistently exist between GPR and oil volatility across different components of realized volatility. In terms of returns, GPR has relatively weak unidirectional nonlinear Granger causation with oil returns. The dynamic correlation analysis shows that GPR mainly affects oil volatility rather than returns. Moreover, GPR mainly affects oil volatility through the jump component of the oil market after the financial crisis, and there is a strong positive correlation between GPR and volatility jumps. Our findings innovatively suggest that GPR can potentially be utilized to improve models of volatility jumps and provide reference for investors and price analysts in oil markets who want to design sensible risk-management strategies.     

Group versus individual compensation schemes for senior executives and firm performance: Some evidence based on archival data

The objectives of this paper are (i) to provide evidence on the association between the choice of group versus individual compensation schemes for senior executives and firm characteristics, and (ii) to provide evidence on the economic consequences of adopting a particular compensation scheme. Our key findings based on 2517 firm years for the period of 2001–2010 show that on average, the choice between group or individual compensation schemes for senior executive compensation schemes are consistent with a firm’s economic characteristics and on average, the choice of compensation schemes does not affect subsequent firm performance. However, we find some evidence that firms that adopt compensation schemes inconsistent with their economic characteristics have lower subsequent performance. Our findings are robust to a number of sensitivity tests.     

我国商业银行宏观压力测试研究——基于四类银行的SUR模型

本文以不良贷款率作为评估银行主要风险的指标,建立SUR模型对我国国有商业银行、股份制银行,城市商业银行和农村商业银行四类银行进行了宏观压力测试。通过构建房价下跌和物价上涨的极端情景,运用蒙特卡洛模拟方法得到宏观经济因素冲击下四类银行的贷款损失分布,结果表明在设定的压力情景下,四类银行的贷款损失率都有不同程度的上升,国有商业银行的稳健性最好,而城市商业银行表现相对较差。