Are stock returns still mean-reverting?

Abstract

This study uses a powerful nonparametric block bootstrap method and fresh data to examine the unresolved issue of mean reversion in stock returns. The results show that both large and small company stocks experienced significant mean reversion in returns for periods of 1 through 5 years during 1926–1966. In 1967–2007, there was significant mean reversion in 5-year returns of large company stocks, and 1-, 4-, and 5-year returns of small company stocks. The findings indicate that, although mean reversion in stock returns has weakened in recent decades, it persists, particularly for small company stocks.