| Summary: | 碩士 === 國立交通大學 === 財務金融研究所 === 95 === Mean reversion exists in many different forms within financial markets, and none of these forms is necessarily inconsistent with efficient markets. However, there is a lack of precision in what many investment practitioners and scholars mean by the term “mean reversion”. In this paper, we propose a formal definition of what most investment practitioners and scholars seem to mean by “mean reversion”. In this paper, we recognize the potential significance of time variation in price reversion, and propose a time-dependent definition of mean reversion, which is based on the Ornstein-Uhlenbeck (O-U) process and the Geometric Brownian Motion (GBM). Using weekly data of VIX (Volatility Index) traded in CBOE from 1990 to 2007, interest rate of the United States Treasury Benchmark Bond 10-year from 1984 to 2007 and the spread between Brent crude oil and West Texas Intermediate crude oil traded in NYMEX from 1997 to 2007 to estimate the level and speed of mean reversion, and we show that the mean reversion phenomenon is not persistent but recurring, and there are inconsistent results by using different time scales.
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