Mean Reversion in Equilibrium Asset Prices: Evidence from the Futures Term Structure
Posted: 6 Sep 1999
Date Written: August 1993
We use price data from an array of futures markets to test whether investors expect spot asset prices to revert, and we identify two sources of equilibrium mean reversion: negative covariation between prices and interest rates, and positive covariation between prices and benefits to holding the asset. We find evidence of mean reversion in every market we examine, although magnitudes and sources differ across markets. For agricultural commodities and crude oil, the mean reversion is strong and arises solely from positive co- movement between prices and benefits to holders of the spot asset. For metals, the mean reversion arises from both sources, but is weaker. For financial assets, mean reversion is weak and is attributable entirely to interest rate sensitivity.
JEL Classification: G12
Suggested Citation: Suggested Citation