NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Mean Reversion in Equilibrium Asset Prices

Stephen G. Cecchetti, Pok-sang Lam, Nelson C. Mark

NBER Working Paper No. 2762 (Also Reprint No. r1436)
Issued in November 1988
NBER Program(s):   ME

Recent empirical studies have found that stock returns contain substantial negative serial correlation at long horizons. We examine this finding with a series of Monte Carlo simulations in order to demonstrate that it is consistent with an equilibrium model of asset pricing. When investors display only a moderate degree of risk aversion, commonly used measures of mean reversion in stock prices calculated from actual returns data nearly always lie within a 60 percent confidence interval of the median of the Monte Carlo distributions. From this evidence, we conclude that the degree of serial correlation in the data could plausibly have been generated by our model.

download in pdf format
   (360 K)

download in djvu format
   (233 K)

email paper

This paper is available as PDF (360 K) or DjVu (233 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2762

Published: American Economic Review, Vol. 80, No. 3, pp. 398-418, (June 1990). citation courtesy of

Users who downloaded this paper also downloaded these:
Kim, Nelson, and Startz w2795 Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence
Poterba and Summers w2343 Mean Reversion in Stock Prices: Evidence and Implications
Weil w2829 The Equity Premium Puzzle and the Riskfree Rate Puzzle
Marcus w3106 An Equilibrium Theory of Excess Volatility and Mean Reversion in Stock Market Prices
Cecchetti, Lam, and Mark w6354 Asset Pricing with Distorted Beliefs: Are Equity Returns Too Good To Be True?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us