International Journal of Business and Economics Volume 19, No. 2 September, 2020

Are BRICS Stock Market Indices Mean Reverting? Evidence Based on Expected Lifetime Range Ratio

Mukta Kanvinde

IFMR Graduate School of Business- Krea University, India

Muneer Shaik

IFMR Graduate School of Business- Krea University, India

Abstract

We use the Expected Lifetime Range (ELR) Ratio proposed in Shaik and Maheswaran (2018) to find evidence of mean reversion in the BRICS stock markets indices. We divide the sample period into pre-crisis, crisis, and post-subprime crisis data sets. We find that the BRICS stock market indices show mean reversion from 2001 to 2018. While before the subprime crisis, the indices followed a random walk, after the subprime crisis, the BRICS stock markets show mean reversion behavior and have become more predictable. We also conduct the Lo and Mackinlay variance Ratio test and find that the Expected Lifetime Range Ratio is better at detecting the presence of mean reversion.

Keywords：Mean Reversion, BRICS, Lo and Mackinlay Variance Ratio, Subprime Crisis, Expected Lifetime Range ratio

JEL Classifications：C58, G10, G12, G14.

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