Mean Reversion in International Stock Markets: An Empirical Analysis of the 20th Century

35 Pages Posted: 18 Jun 2010 Last revised: 17 Jan 2012

See all articles by Laura Spierdijk

Laura Spierdijk

University of Groningen

Jacob Antoon Bikker

De Nederlandsche Bank; Utrecht University - School of Economics

Pieter van den Hoek

Towers Watson

Multiple version iconThere are 2 versions of this paper

Date Written: September 24, 2010


This paper analyzes mean reversion in international stock markets during the years 1900 – 2009, using annual data. Our panel of stock indices in 18 OECD countries allows us to analyze in detail the dynamics of the mean-reversion process. In the period 1900 – 2009 it takes stock prices about 18.5 years, on average, to absorb half of a shock. However, using a rolling-window approach we establish large fluctuations in the speed of mean reversion over time. The highest mean reversion speed is found for the period including the Great Depression and the start of World War II. Furthermore, the early years of the Cold War and the period containing the Oil Crisis of 1973, the Energy Crisis of 1979 and Black Monday in 1987 are also characterized by relatively fast mean reversion. We document half-lives ranging from a minimum of 2.0 years to a maximum of 22.6 years, which underlines the fact that the choice of data sample contributes substantially to the evidence in favor of mean reversion. Our results suggest that the speed at which stocks revert to their fundamental value is higher in periods of high economic uncertainty, caused by major economic and political events.

Keywords: mean reversion, market efficiency, cointegration

JEL Classification: C23, G14, G15

Suggested Citation

Spierdijk, Laura and Bikker, Jacob Antoon and van den Hoek, Pieter, Mean Reversion in International Stock Markets: An Empirical Analysis of the 20th Century (September 24, 2010). Netspar Discussion Paper No. 03/2010-009. Available at SSRN: or

Laura Spierdijk (Contact Author)

University of Groningen ( email )

PO Box 800
Groningen, 9700 AV

Jacob Antoon Bikker

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC

Pieter Van den Hoek

Towers Watson ( email )

United States

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