Average Crossing Time: An Alternative Characterization of Mean Aversion and Reversion / John B. Donaldson, Rajnish Mehra.

Format:

Book

Author/Creator:

Donaldson, John B.

Contributor:

National Bureau of Economic Research.

Mehra, Rajnish.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25519.

NBER working paper series no. w25519

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Average Crossing Time

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

We evaluate the properties of mean reversion and mean aversion in asset prices and returns as commonly characterized in the finance literature. The study is undertaken within a class of well-known dynamic stochastic general equilibrium models and shows that the mean reversion/aversion distinction is largely artificial. We then propose an alternative measure, the 'Average Crossing Time' that both unifies these concepts and provides an alternative characterization. Ceteris paribus, mean reverting processes have a relatively shorter average crossing time as compared to mean averting processes.

Notes:

Print version record

January 2019.