Mean Reversion in Stock Prices: Evidence and Implications

@article{Poterba1988MeanRI,
  title={Mean Reversion in Stock Prices: Evidence and Implications},
  author={J. Poterba and L. Summers},
  journal={Journal of Financial Economics},
  year={1988},
  volume={22},
  pages={27-59}
}
This paper analyzes the statistical evidence bearing on whether transitory components account for a large fraction of the variance in common stock returns. The first part treats methodological issues involved in testing for transitory return components. It demonstrates that variance ratios are among the most powerful tests for detecting mean reversion in stock prices, but that they have little power against the principal interesting alternatives to the random walk hypothesis. The second part… Expand
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