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Albrecht, P., Kantar, C. Random Walk oder Mean Reversion?. . Eine statistische Analyse des Kurs/Gewinn-Verhältnisses für den deutschen Aktienmarkt. Credit and Capital Markets – Kredit und Kapital, 37(2), 223-245.
Albrecht, Peter and Kantar, Cemil "Random Walk oder Mean Reversion?. Eine statistische Analyse des Kurs/Gewinn-Verhältnisses für den deutschen Aktienmarkt. " Credit and Capital Markets – Kredit und Kapital 37.2, 2004, 223-245.
Albrecht, Peter/Kantar, Cemil (2004): Random Walk oder Mean Reversion?, in: Credit and Capital Markets – Kredit und Kapital, vol. 37, iss. 2, 223-245, [online]


Random Walk oder Mean Reversion?

Eine statistische Analyse des Kurs/Gewinn-Verhältnisses für den deutschen Aktienmarkt

Albrecht, Peter | Kantar, Cemil

Credit and Capital Markets – Kredit und Kapital, Vol. 37 (2004), Iss. 2 : pp. 223–245

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Peter Albrecht, Mannheim

Cemil Kantar, Mannheim


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Random Walk or Mean Reversion? A Statistical Analysis of the Price/Earnings Ratio for the German Stock Market

The present contribution considers the question whether the random walk model or an AR(1)-process (“mean reversion”) is a better representation for the development of the price/earnings ratio of the German blue-chip index DAX. Empirical evidence for one of these alternative model hypotheses is crucial to the predictability of the underlying variable, i.e. the P/E ratio. While the random walk hypothesis implies the non-existence of a long-run “fair” value for the variable of interest, an AR(1)-process, in contrast, possesses a long-run mean and exhibits mean reverting behaviour in that it fluctuates around this constant long-run value. Both an exploratory data analysis and a set of formal statistical tests equally lead to the conclusion that the hypothesis of an AR(1)-process, in a statistical sense, better represents the investigated time series data than the random walk model. The consequences of this key result are not only discussed with respect to the predictability of the P/E ratio of the German stock market index, but also with regard to forecasts for the development of the DAX itself