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

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Donaldson, John B

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w25519.Publication details: Cambridge, Mass. National Bureau of Economic Research 2019.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w25519 (Browse shelf(Opens below))	Not For Loan

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January 2019.

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.