TY - JOUR
T1 - Is asymmetric mean-reverting pattern in stock returns systematic? Evidence from Pacific-basin markets in the short-horizon
AU - Nam, Kiseok
AU - Pyun, Chong Soo
AU - Kim, Sei Wan
N1 - Funding Information:
This study was partly supported by the Faculty Research Grant (K. Nam) from the University of Texas-Pan American and a summer research grant (C. Pyun) from the Center for International Business and Education Research at the University of Memphis.
PY - 2003/12
Y1 - 2003/12
N2 - This paper applies asymmetric nonlinear smooth transition generalized autoregressive conditional heteroskedasticity (ANST-GARCH) models to the analysis of mean-reversion and time-varying volatility in weekly index returns of the stock markets of nine countries in the Pacific-basin. It finds that the returns exhibit an asymmetric pattern of return reversals, viz., on average, a negative return reverts more quickly, with a greater magnitude, to a positive return than a positive return reverting to a negative one. The asymmetric pattern of return reversals is directly associated with the unequal pricing behavior on the part of investors. Following a negative return shock, investors do not appear to require any additional premium to the leverage effect; instead they actually neutralize the risk in the form of a reduced premium! The reduction in risk premium causes not only the current stock price to rise but also the realized negative return to revert faster with a greater magnitude.
AB - This paper applies asymmetric nonlinear smooth transition generalized autoregressive conditional heteroskedasticity (ANST-GARCH) models to the analysis of mean-reversion and time-varying volatility in weekly index returns of the stock markets of nine countries in the Pacific-basin. It finds that the returns exhibit an asymmetric pattern of return reversals, viz., on average, a negative return reverts more quickly, with a greater magnitude, to a positive return than a positive return reverting to a negative one. The asymmetric pattern of return reversals is directly associated with the unequal pricing behavior on the part of investors. Following a negative return shock, investors do not appear to require any additional premium to the leverage effect; instead they actually neutralize the risk in the form of a reduced premium! The reduction in risk premium causes not only the current stock price to rise but also the realized negative return to revert faster with a greater magnitude.
KW - Asymmetric mean-reversion
KW - Nonlinear asymmetric GARCH model
KW - Pacific-basin stock markets
UR - http://www.scopus.com/inward/record.url?scp=0038796462&partnerID=8YFLogxK
U2 - 10.1016/S1042-4431(03)00019-2
DO - 10.1016/S1042-4431(03)00019-2
M3 - Article
AN - SCOPUS:0038796462
VL - 13
SP - 481
EP - 502
JO - Journal of International Financial Markets, Institutions and Money
JF - Journal of International Financial Markets, Institutions and Money
SN - 1042-4431
IS - 5
ER -