.ISSN (e) 1759-7331
(print) 1759-7323
Quantitative Economics
An open-access journal in quantitative economics
Journal of the
Econometric Society
Font Size:  Small  Medium  Large

Quantitative Economics, Volume 12, Issue 3 (July 2021)

Average crossing time: An alternative characterization of mean aversion and reversion

John B. Donaldson, Rajnish Mehra

Abstract



This study compares and contrasts the multiple characterizations of mean reversion in financial time series as regards the restrictions they imply. This is accomplished by translating them into statements about an alternative measure, the “Average Crossing Time” or ACT. We argue that the ACT measure, per se, provides not only a useful benchmark for the degree of mean reversion/aversion, but also an intuitive, and easily quantified sense of one time series being “more strongly mean‐reverting/averting” than another. We conclude our discussion by deriving the ACT measure for a wide class of stochastic processes and detailing its statistical characteristics. Our analysis is principally undertaken within a class of well‐understood production based asset pricing models.



Mean aversion mean reversion average crossing time time series asset pricing C13 C53 E3 E44 E47 G1 G12

Full Text: Print View Supplementary code PDF (Print)