The Efficient Market Hypothesis (EMH) is frequently tested by measuring the degree of mean reversion in stock prices, since highly predictable changes might indicate that investors are not fully rational. Existing studies often rely on statistical tests which impose too restrictive assumptions on the time series behaviour of the series of interest, and have very low power. This paper uses a tes...

Harrison and Kreps showed in 1978 how the heterogeneity of investor beliefs can drive speculation, leading the price of an asset to exceed its intrinsic value. By focusing on an extremely simple market model – a finite-state Markov chain – the analysis of Harrison and Kreps achieved great clarity but limited realism. Here we achieve similar clarity with greater realism, by considering an asset ...

written while he was a Visiting Scholar at the Federal Reserve Bank of St. Louis. The authors are grateful to Abhay Abhyankar, Bernard Dumas, Mark Taylor, and Dick van Dijk for useful conversations or comments on previous drafts. The usual disclaimer applies, meaning that the authors alone are responsible for any errors that may remain and for the views expressed in the paper. *Correspondence a...

Non-malignant breast epithelial cells cultured in three-dimensional laminin-rich extracellular matrix (lrECM) form well organized, growth-arrested acini, whereas malignant cells form continuously growing disorganized structures. While the mechanical properties of the microenvironment have been shown to contribute to formation of tissue-specific architecture, how transient external force influen...

It is well known that for continuous time models with a linear drift standard estimation methods yield biased estimators for the mean reversion parameter both in finite discrete samples and in large in-fill samples. In this paper, we obtain two expressions to approximate the bias of the least squares/maximum likelihood estimator of the mean reversion parameter in the Ornstein–Uhlenbeck process ...

It is well known that for continuous time models with a linear drift standard estimation methods yield biased estimators for the mean reversion parameter both in …nite discrete samples and in large in-…ll samples. In this paper, we obtain two expressions to approximate the bias of the least squares/maximum likelihood estimator of the mean reversion parameter in the Ornstein-Uhlenbeck process wi...

While the vast majority of the literature reports momentum profitability to be overwhelming in the U.S. market and widespread in other countries, this paper finds that the pure momentum strategy in general does not yield excess profitability in the Chinese stock markets. We find instead strong mean reversion. A pure contrarian investment strategy produces positive excess returns and in general ...

This paper shows pricing and hedging efficiency of a three factor stochastic mean reversion Gaussian model of commodity prices using oil and copper futures and forward contracts. The model is estimated using NYMEX WTI (light sweet crude oil) and LME Copper futures prices and is shown to fit the data well. Furthermore, it shows how to hedge based on a three-factor model and confirms that using t...

The daily structure of the US Treasury Constant Maturity Rates is investigated in this paper by means of fractional integration techniques. Using a version of the tests of Robinson (1994) along with a model selection criterion based on diagnostic tests on the residuals, we show that the behaviour of this series can be captured by I(d) statistical models with the fractional parameter d close to,...

We consider two Gaussian measures. In the "initial" measure the state variable is Gaussian, with zero drift, and time-varying volatility. In the "target measure" the state variable follows an Ornstein-Uhlenbeck process, with a free set of parameters, namely the time-varying speed of mean-reversion. We look for the speed of mean reversion that minimizes the variance of the Radon-Nikodym derivati...