Mean Reversion in Equilibrium Asset Prices: Evidence from the Futures Term Structure

Posted: 6 Sep 1999

See all articles by Hendrik Bessembinder

Hendrik Bessembinder

Arizona State University

Jay F. Coughenour

University of Delaware - Department of Finance

Margaret Smoller

Wayne State University

Paul J. Seguin

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: August 1993

Abstract

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

Bessembinder, Hendrik (Hank) and Coughenour, Jay F. and Monroe Smoller, Margaret and Seguin, Paul J., Mean Reversion in Equilibrium Asset Prices: Evidence from the Futures Term Structure (August 1993 ). Available at SSRN: https://ssrn.com/abstract=5704

Hendrik (Hank) Bessembinder

Arizona State University ( email )

PO Box 873906
Tempe, AZ 85207
United States

Jay F. Coughenour

University of Delaware - Department of Finance ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States
(302) 831-1015 (Phone)

Margaret Monroe Smoller

Wayne State University ( email )

Detroit, MI 48202
United States

Paul J. Seguin (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
(612) 626-7861 (Phone)

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