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Do Investors Expect Mean Reversion in Asset Prices?
Author(s) -
Fraser Patricia,
McKaig Andrew J.
Publication year - 1999
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00248
Subject(s) - mean reversion , economics , cash flow , financial economics , asset (computer security) , maturity (psychological) , financial market , econometrics , risk premium , commodity , capital asset pricing model , interest rate , monetary economics , finance , psychology , developmental psychology , computer security , computer science
We investigate the existence and source of equilibrium mean reversion in UK non‐financial and financial asset prices over the period 6 April, 1981, through 31 October, 1995. Our results indicate substantial expected transitory components in commodity and metals markets but report expected mean reversion for financial assets only at the near to maturity horizons. Implied cash flow yields appear to have a role in driving the mean reverting process particularly at short horizons while the role of interest rate movements varied across assets and across maturities. Our results reject the existence of a common risk premium across market term structures.