An Empirical Test Based On The Mean Regression Of A - Share Market

With the development of Chinese financial markets, the Investment behavior that do the same thing with others blindly are gradually decreasing. In order to achieve the purpose of seeking to maximize the benefits, more and more investors prefer to invest by building a rational model to reduce their risk. So mean reversion model will undoubtedly help investors obtain a good income in the competitive market. Mean reversion theory suggests that the movement of the market reject the random walk, and it always fluctuates around the equilibrium value. When the price is far deviated from the central value, the market will revert to the spot in a higher probability. And this conclusion has been confirmed.This paper was based on the mean reversion theory, and supported the Shanghai and Shenzhen 300 Index, the Shanghai A-share Composite Index, the Shenzhen A-share Composite Index, small board index, GEM index and all individual stocks in A-share market the empirical evidence. It found that the GEM index and nearly two-thirds of the A-share stocks exhibit mean reversion property. So on the one hand we can know most index rejected the hypothesis of the mean reversion and consistent with the random walk hypothesis. On the other hand we can find mean reversion phenomenon in A-share was relatively common. In the latter part of the empirical model, we use the half-life model to detect the cycle time of mean reversion. And we found the cycle time of mean reversion exceed one year for most stocks and even more than hundreds of years or a few thousand years. The results tell us pay more attention to the cycle time. Finally, we demonstrated that the economic significance of the mean reversion theory by a portfolio based on the mean reversion theory.