Study On Mean Reversion For China Stock Price

There have been so much of theory about stock markets, and the most basic theory is on effective market. Then, is the motion of stock price of randomness or mean reversion? This paper will talk about this question from three aspects. First, is there a mean reversion in shanghai stock markets? We found that three professions like industry, commerce, utility and Shanghai price index have remarkable the same trend between stock price and EPS in the long horizon, i.e mean reversion. But according to the cointegrate test, the profession of real estate does not show mean reversion. Second, this paper research information asymmetry of price index in Shanghai stock markets using TARCH model and EGARCH model. We find that price index shows the feature of asymmetry. The feature of asymmetry in Shanghai stock market shows that positive price index exceeds negative price index in speed and extend. This means investors will lack of activity when they meet in bad news, on the contrary, investors will over reflection. The feature of asymmetry is in line with our social situation: investors will buy much more stock in good news than in bad news. At last, this paper research the return cycle in Shanghai stock market using spectral analysis. We find that there is a ten-months fluctuate cycle in Shanghai stock markets. The mean reversion of stock price was done by many scholars, few of them study it from china stock markets, which is our innovation point.