A Bayesian Inference Approach to Testing Mean Reversion in the Swedish Stock Market

21 Pages Posted: 7 Dec 2000

See all articles by Andreas Graflund

Andreas Graflund

Lund University - Department of Economics

Date Written: August 2000


In this paper we use a Bayesian approach to test for mean reversion in the Swedish stock market on monthly data 1918-1998. By simply account for the heteroscedasticity of the data with a two-state hidden Markov model of normal distributions and taking estimation bias into account via Gibbs sampling we cannot find support of mean reversion. This is a contradiction to previous result from Sweden. We find that a tranquil and a volatile regime can characterize the Swedish stock market and within the regimes the stock market is random. This finding of randomness is in line with recent evidence for the U.S stock market.

Keywords: Market efficiency, variance ratio, Gibbs sampling, hidden Markov chains, MCMC

JEL Classification: G10 C11 C15

Suggested Citation

Graflund, Andreas, A Bayesian Inference Approach to Testing Mean Reversion in the Swedish Stock Market (August 2000). EFMA 2000 Athens; Department of Economics Working Paper No. 2000:8. Available at SSRN: https://ssrn.com/abstract=250089 or http://dx.doi.org/10.2139/ssrn.250089

Andreas Graflund (Contact Author)

Lund University - Department of Economics ( email )

P.O. Box 7082
S-220 07 Lund
+46 (0) 46 222 79 19 (Phone)
+46 (0) 46 222 41 18 (Fax)

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