Evidence Of Mean Reversion Research Articles

Persistence of fisheries production: a disaggregated analysis in 31 OECD Countries

Previous studies have focussed on different aspects of fisheries production in several countries. However, the literature has been largely silent on the persistence of fisheries production, which has numerous important policy implications. In this article, we examine time series data corresponding to fisheries production in a group of 31 OECD countries. The analysis focuses on three distinct production series for each country: total fisheries production, aquaculture production, and capture fisheries production, and the time period spans from 1960 to 2020. Using fractional integration methods, the empirical findings provide evidence for persistence in fisheries production and its two components in the majority of the OECD countries examined. Persistence is observed in 29 countries in the case of the total fisheries production, 28 countries in the case of capture fisheries production, and 28 countries in the case of aquaculture production. Evidence of mean reversion is observed in Chile and Colombia for the total fisheries production, and in Belgium, Colombia, and Israel for the capture fisheries production. There is support for mean reversion in aquaculture production data for France, the Netherlands and Poland. An implication of the results is that shocks to the fisheries production or its components are permanent or long-term in nature. Therefore, long-term measures are need to address any disruptions in the fishery sector.

Persistence in the Unemployment and Inflation Relationship. Evidence from 38 OECD Countries

AbstractThis paper focuses on the analysis of persistence in the unemployment and inflation rates in a group of 38 OECD countries as well as on the relationship between the two variables. For this purpose, fractional integration is used. The results indicate that the two individual variables are highly persistent, especially the unemployment rate, and evidence of mean reversion is only found in the cases of Colombia and Costa Rica for unemployment and in Norway for inflation. Conducting the analysis on the difference between the two variables, the order of integration is significantly smaller in a number of cases, and reversion to the mean takes place in the cases of Austria, Switzerland, Costa Rica, Israel, and Turkey. Policy recommendations derived from the results are presented in the concluding section of the article.

Testing Fractional Persistence and Nonlinearity in Infant Mortality Rates of Asia Countries

The infant mortality rates in 45 Asian countries (1960-2018), obtained from the Federal Reserve Bank of St. Louis database, are investigated using I(d) framework, which allows for simultaneous estimation of the degree of persistence and nonlinearities in infant mortality rates as well as their growth rates. A high degree of persistence in the decreases of mortality rate is found with nonlinear evidence in most of the cases, confirming nonlinear dynamics of mortality rates. In the growth of mortality rates, we find ten countries (Armenia, Indonesia, Israel, Japan, Kuwait, Myanmar, Saudi Arabia, Sri Lanka, Thailand, and UAE) with evidence of mean reversion. Health management in those listed countries needs to kick start interventions that improve the survival rates of infants.

Labour market mismatches in G7 countries: a fractional integration approach

ABSTRACT This paper examines the G7 labour market, analysing unemployment, job vacancies and the spread of both in terms of time series persistence from January 2002 to October 2023. Using fractional integration, we observe the series show long memory and persistence in all G7 countries. These findings differ slightly depending on the specification of the error term. If it is white noise, no evidence of mean reversion is found in any scenario except for US unemployment. With autocorrelated disturbances, mean reversion is found in unemployment rates in Canada, Germany, and the US. In France, this is the case for job vacancies, and in France and Italy, for spread. The UK is the only country that does not display any degree of reversion to the mean in the three series examined. Our results show evidence of a downward trend for unemployment and an upward trend for job vacancies in all G7 countries. Consequently, the reduction of the imbalance unemployment-vacancies seems permanent, which is a positive outcome for advanced economies.

Volatility persistence in metal prices

This article deals with the analysis of volatility persistence in a group of metal prices, namely gold, silver, copper, platinum, aluminium, palladium, lead, zinc and tin, using monthly data from January 1994 to February 2023. Applying fractional integration techniques, the findings show that all series are highly persistent, although the prices for Gold and Silver display a limited mean reversion. The volatility was approximated by the absolute and squared returns and the results show that in the case of the annual difference returns, the series are persistent and the evidence of mean reversion is only observed for Gold and Silver. In the case of monthly differences, the hypothesis of short memory (d = 0) behavior cannot be rejected in all cases. For the absolute returns, the values are all positive, denoting a long memory ranging from 0.14 for Gold to 0.18 for Silver. For the squared returns, the values are slightly smaller but positive, ranging from 0.11 (Gold) to 0.16 (Aluminum and Palladium). The supply-side economic policy should be intensified in the case of the most volatile metals.

Household expenditure in Africa: evidence of mean reversion

This paper investigates the mean reversion in household consumption expenditure in 38 African countries; the expenditure series used were the percentage of nominal Gross Domestic Product (GDP), each spanning 1990 to 2018. Due to a small sample size of time series of household expenditure, with possible structural breaks, we used the Fourier unit root test approach, which enabled us to model both smooth and instantaneous breaks in the expenditure series. The results showed non-mean reversion in the consumption expenditure pattern of Egypt, Madagascar and Tunisia, while mean reversion was detected in the remaining 35 countries. Thus, the majority of African countries are on the verge of recession once shocks that affect the growth of GDP are triggered. Findings in this paper are of relevance to policymakers on poverty alleviation programmes in those selected countries.

CO2 emissions persistence: Evidence using fractional integration

The main cause of climate change are carbon dioxide emissions. In the context of the COVID-19 pandemic, the number of emissions has been significantly reduced for the first time in many years. Now it is necessary to answer the question of whether CO2 emissions are stationary or not, because the results will let us know whether environmental policies have to be strengthened rather than relaxed in intensity. To this end, this paper investigates the persistence in CO2 emissions in a group of countries to determine if shocks in the series have permanent or transitory effects. The results, based on fractional integration indicate evidence of mean reversion, with values of the differencing parameter constrained between 0 and 1 in all cases, independently of the assumption made about the error term (white noise or autocorrelation). Focusing on the areas under examination, it is obtained that the EU27+UK, Japan and the US present the lowest degrees of integration, while Russia, China and India display the highest values. Decreasing time trends are only observed for the EU27+UK and US.

The COVID-19 pandemic and the degree of persistence of US stock prices and bond yields

This paper analyses the possible effects of the Covid-19 pandemic on the degree of persistence of US monthly stock prices and bond yields using fractional integration techniques. The model is estimated first over the period January 1966-December 2020 and then a recursive approach is taken to examine whether or not persistence has changed during the following pandemic period (up to February 2021). We find that the unit root hypothesis cannot be rejected for stock prices while for bond yields the results differ depending on the maturity date and the specification of the error term. In general, bond yields appear to be more persistent, although there is evidence of mean reversion in case of 1-year yields under the assumption of autocorrelated errors. The recursive analysis shows no impact of the Covid-19 pandemic on the persistence of stock prices, whilst there is an increase in the case of both 10- and 1- year bond yields but not of their spread.

Further evidence of mean reversion in CO2 emissions

Sephton (2020) demonstrated that nearly all national and relative CO2 emissions in a group of 33 nations were mean-reverting after making allowance for non-linear deterministics and first-order autocorrelation. This suggested that a permanent reduction in emissions could only be accomplished through structural changes that alter trends. This paper extends the analysis in two directions. The first is to test whether the AR1 specification is preferred to an unrestricted general dynamic model through the application of common factor tests. The second is to non-nested hypothesis tests to determine which specification is best supported by the data. In many cases emissions are mean-reverting, but for some countries, none of the models appear to adequately capture the temporal behaviour of national or relative CO2 emissions. In a majority of nations, policies that fundamentally change behaviour and induce structural change are required to achieve a permanent reduction in emissions.

Persistence of Sulfur Dioxide Emissions in OECD Countries Between 1750–2014: A Fractional Integration Approach

In this paper, the degree of persistence of the sulfur dioxide emissions in a group of 37 OECD countries is examined by looking at the order of integration of the series. However, instead of using integer degrees of differentiation (i.e., 1 in case of unit roots and 0 for stationarity), fractional values are also considered. The results indicate high degrees of persistence and very little evidence of mean reversion. This property only holds for the three Latin American countries examined, namely Chile, Colombia and Mexico if the error follows a white noise process. If autocorrelation is permitted, however, the confidence intervals are wider and mean reversion is not found in any single case. Thus, shocks in the series are expected to be permanent in the majority of the cases examined.

Testing Fractional Persistence and Nonlinearity in Infant Mortality Rates of Asia Countries

The infant mortality rates in 45 Asian countries (1960-2018), obtained from the Federal Reserve Bank of St. Louis database, are investigated using the I(d) framework, which allows for simultaneous estimation of the degree of persistence and nonlinearities in infant mortality rates as well as their growth rates. A high degree of persistence in the decreases of mortality rate is found with nonlinear evidence in the majority of the cases, confirming nonlinear dynamics of mortality rates. In the growth of mortality rates, we find ten countries (Armenia, Indonesia, Israel, Japan, Kuwait, Myanmar, Saudi Arabia, Sri Lanka, Thailand, and UAE) with evidence of mean reversion. Health management in those listed countries needs to kick start interventions that improve the survival rates of infants.

The COVID-19 Pandemic and the Degree of Persistence of US Stock Prices and Bond Yields

This paper analyses the possible effects of the Covid-19 pandemic on the degree of persistence of US monthly stock prices and bond yields using fractional integration techniques. The model is estimated first over the period January 1966-December 2020 and then a recursive approach is taken to examine whether or not persistence has changed during the following pandemic period. We find that the unit root hypothesis cannot be rejected for stock prices while for bond yields the results differ depending on the maturity date and the specification of the error term. In general, bond yields appear to be more persistent, although there is evidence of mean reversion in case of 1-year yields under the assumption of autocorrelated errors. The recursive analysis shows no impact of the Covid-19 pandemic on the persistence of stock prices, whilst there is an increase in the case of both 10- and 1- year bond yields but not of their spread.

Relative Price Convergence among Pakistani Cities: Does the Choice of Numeraire City Matter?

This study examines the price dynamics across seventeen cities in Pakistan, considering monthly disaggregated goods prices, and the convergence behavior among tradables and non-tradables. The results show overwhelming evidence of mean reversion of relative prices among cities. Varying across items, the speed of convergence is only a few months or less. Nevertheless, the results challenge some of the previous findings as the services which are considered as non-tradable items also reject the null of unit root with half-lives of less than a year. The empirical results of this study support the conjecture that intra-national prices converge faster than international prices. Greater tendency of convergence towards the Law of One Price implies high integration of Pakistani markets or perhaps low degree of specialization and market differentiation.

Mean Reversion of the Ibovespa Price-Earnings Ratios

This paper presents a method for constructing price-earnings ratios (P/Es) for the Brazilian stock market. The objective was to assess whether the P/E ratios exhibit mean reversion, in addition to assessing whether there is a long-run equilibrium relationship between the stock price index and the earnings per share index used in calculating the valuation ratios. The bounds testing approach to cointegration evidenced that the time series of these indexes are cointegrated. Using the ADF, KPSS, and Lee–Strazicich unit root tests, evidence of mean reversion was found in the series of one of the proposed P/E ratios.

Comparative analysis of economic growth in Nigeria and Kenya: A fractional integration approach

AbstractThis paper is a comparative analysis of Nigeria and Kenya, the largest economies in West and East Africa respectively, on the basis of the time series properties of their economic activities through the Gross Domestic Product (GDP) and growth rate series. It further analyses how differing policy and political economy processes contributed to the two countries' economic growth trajectories despite becoming independent republics at almost the same time. We study the two economies using a long‐memory‐fractionally integrated approach. The results show a high degree of persistence in both cases. When non‐linearities are taken into account, evidence of mean reversion is found in the GDP series in the two countries. This is indicative of how the two countries in very distinct African contexts followed broadly different but, in some ways, similar paths toward economic growth since independence.

Modelling Long-Range Dependence and Non-linearity in the Infant Mortality Rates of African Countries

Infant mortality rates in 34 Sub-Saharan African countries (1960–2016), obtained from the Federal Reserve Bank of St. Louis database, were examined in this paper by focusing on the degree of persistence and non-linearities in the growth rate series. Persistence deals with the degree of association between the observations. Non-linearity occurs when departing from the linear assumption as in a time trend. These two issues are relevant in this context because they are intimately related. Based on the high degree of persistence observed in the series examined, instead of investigating structural breaks, which produce abrupt changes in the data, a non-linear approach was used based on Chebyshev polynomials in time, producing smooth rather than abrupt changes. This approach has never been examined in a unified framework in the treatment of infant mortality rates. The results indicate that half of the countries examined display non-linearities and the orders of integration of the series are extremely large in all cases, being around two in the majority of them. Looking at the growth rate series, significant negative trends were observed for: Chad, Equatorial Guinea and Mozambique. Evidence of mean reversion and thus transitory shocks, were observed for Lesotho, Rwanda, Botswana and Mozambique. Time dynamics of the series were expected to persist in order to ascertain the decline in mortality rates. Therefore, serious government interventions are required in managing infant health in these countries.

The Effect of War Risk on Managerial and Investor Behavior: Evidence from the Brussels Stock Exchange in the Pre-1914 Era

With two news-based measures on war, I document that managers mitigated war risk through dividend cuts, arguably to establish a war chest. Moreover, I find that companies postponed their initial public offerings and that foreign companies were more likely to delist after the onset of wars. Investors reacted negatively to the increase in war news coverage. There is evidence of mean-reversion after a threat of war and a negative drift following the start of war. Finally, I highlight the importance of proximity to military conflicts. In general, the evidence indicates that both managers and investors became more risk averse as a consequence of war news.

Analytic value function for a pairs trading strategy with a Lévy-driven Ornstein–Uhlenbeck process

This paper studies the performance of pairs trading strategy under a specific spread model. Based on the empirical evidence of mean reversion and jumps in the spread between pairs of stocks, we assume that the spread follows a Lévy-driven Ornstein–Uhlenbeck process with two-sided jumps. To evaluate the performance of a pairs trading strategy, we propose the expected return per unit time as the value function of the strategy. Significantly different from the current related works, we incorporate an excess jump component into the calculation of return and time cost. Further, we obtain the analytic expression of strategy value function, where we solve out the probabilities of crossing thresholds via the Laplace transform of first passage time of the Lévy-driven Ornstein–Uhlenbeck process in one-sided and two-sided exit problems. Through numerical illustrations, we calculate the value function and optimal thresholds for a spread model with symmetric jumps, reveal the non-negligible contribution of incorporating the excess jumps into the value function, and analyze the impact of model parameters on the strategy performance.

Exchange rate dynamics in South Africa

ABSTRACTThe structure of the nominal exchange rates in South Africa is examined by using fractional integration. We investigate the levels and the volatilities against the US dollar, the British pound, the Euro, the Japanese yen, the Chinese yuan, the Australian dollar, and the Botswanan pula. The results indicate that most series are unit root, I(1) and though there is some evidence of mean reversion, the orders of integration are close to 1, implying high levels of persistence. However, there is evidence of mean reversion for Bostwana Pula in various subsamples. For the volatilities, the stationary long memory is observed in all cases.

An analysis of the OPEC and non-OPEC position in the World Oil Market: A fractionally integrated approach

This paper deals with the analysis of the world, OPEC and non-OPEC oil production by testing the degree of persistence of the series throughout fractional integration. The analysis is relevant in the sense that it allows us to determine if shocks in the series have permanent or transitory effects. The results indicate evidence of mean reversion in the three series, especially for the world and OPEC production. We also notice evidence of multiple breaks though the degree of persistence seems to be relatively stable across the subsamples, with most of the values in the range [0.5, 1) implying non-stationary and mean reverting behavior.