Dissertation proposal
Dissertation Proposal
GDDS 599
Topic
“Pace of Mean Reversion in Pakistan`s Stock Market”
Submitted by: Anique Rehman (MS33 2789)
Submitted to: Sir Nawaz Ahmed
1. Introduction
Warren Buffett, the world`s most successful investor said that stock prices forever fluctuate between unjustifiable optimism and unjustifiable pessimism. What Buffett meant to say was that the market may be overpriced at one point, fairly priced at another and yet under priced at another.
An explanation for Buffett`s analogy may be explained by the fact that speculators in the market cause major fluctuations, while the investor brings rationality to the markets. For example, it is a known fact that when there is good news regarding a company listed in the stock market, the price will increase for the mentioned company. The speculator in the hope that the market will rise even further starts to place massive by-orders in the markets leading to higher prices. The investor who is aware of the underline value of the stock realizes that he can make a nice profit by selling his stock at these inflated prices. This leads to lower prices. This in fact is one of the major reasons which describes the phenomenon of mean reversion.
Mean reversion is a theory suggesting that prices and returns eventually move back towards the mean or average.
1.1 Purpose of the study
The purpose of this study is to analyze stock market data in order to determine if there is any presence of mean reversion phenomenon in the Pakistan`s stock market sectors and what is it`s composite effect on the 100 Index and All Share Index. If my study leads me to believe that there is reversion to mean phenomenon in the market then I will also attempt to determine the pace at which mean reversion takes place.
1.2 Problem Statement
Is there reversion to mean phenomenon in KSE 100 and All Share Index and at what pace?
1.3 Scope of the study
I will take into analysis the price indexes for
GDDS 599
Topic
“Pace of Mean Reversion in Pakistan`s Stock Market”
Submitted by: Anique Rehman (MS33 2789)
Submitted to: Sir Nawaz Ahmed
1. Introduction
Warren Buffett, the world`s most successful investor said that stock prices forever fluctuate between unjustifiable optimism and unjustifiable pessimism. What Buffett meant to say was that the market may be overpriced at one point, fairly priced at another and yet under priced at another.
An explanation for Buffett`s analogy may be explained by the fact that speculators in the market cause major fluctuations, while the investor brings rationality to the markets. For example, it is a known fact that when there is good news regarding a company listed in the stock market, the price will increase for the mentioned company. The speculator in the hope that the market will rise even further starts to place massive by-orders in the markets leading to higher prices. The investor who is aware of the underline value of the stock realizes that he can make a nice profit by selling his stock at these inflated prices. This leads to lower prices. This in fact is one of the major reasons which describes the phenomenon of mean reversion.
Mean reversion is a theory suggesting that prices and returns eventually move back towards the mean or average.
1.1 Purpose of the study
The purpose of this study is to analyze stock market data in order to determine if there is any presence of mean reversion phenomenon in the Pakistan`s stock market sectors and what is it`s composite effect on the 100 Index and All Share Index. If my study leads me to believe that there is reversion to mean phenomenon in the market then I will also attempt to determine the pace at which mean reversion takes place.
1.2 Problem Statement
Is there reversion to mean phenomenon in KSE 100 and All Share Index and at what pace?
1.3 Scope of the study
I will take into analysis the price indexes for
References: Pavlenko, A. (2008). Mean Reversion in Stock Market Prices: Evidence from Ukraine. EERC Master Thesis. Cutler, David M., Poterba, JamesM., and Summers, Lawrence H., Speculative dynamics, Review of Economic Studies, 1991, 58, 529-546. Kim, Myung Jig, Nelson, Charles R., and Startz, Richard, Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence, Review of Economic Studies, 1991, 58, 151-528.