An Investigation On the Presence of Mean Reversion in Stock Prices in Tehran Stock Exchange

Abstract

Financial Scientists have always been eager to distinguish between whether the price series could be random walk (unit root) or mean reverting processes.By a random walk we mean that accruing shocks to the system have permanent impacts and prices do not revert to their previous trend path, in addition, regarding to random walk processes the price series volatility could increase with out any limit or restrictions. In this survey, using the time series of price and utilizing Augmented Dickey-Fuller Test we have attempted to investigate a sample of selected firms, listed in Tehran stock exchange. To start we have developed a simple definition of mean reversion and tested the presence of such a qualification in price series of the sample.

Keywords

• augmented dickey fuller test
• efficiency
• mean reversion
• random walk
• stationary