Mean Reversion and Self-Valuation of European Common Stocks

This article presents empirical evidence that European stock markets independently determine the values of their listed common stocks. It shows that European common stocks establish their own discount rates, which in turn determine their equity values. The study models mean reversion in continuous time and demonstrates its minimal impact on prediction accuracy, indicating the efficiency of self-valuation. Mean reversion of current stock prices is an activity where investors assess the values of common stocks listed on an exchange. The speed of mean reversion of a current stock price determines the discount rate. The continuous-time first-order autoregressive model captures both the mean reversion of a current stock price and the volatility due to mean reversion, describing the dynamics of mean reversion in pricing. The closing prices of European common stocks are shown to be volatile, indicating the inherent risks of investing in common stocks.

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Publication Details

Journal
Journal of Mathematical Finance
Published
2025-01-01
DOI
https://doi.org/10.4236/jmf.2025.153020
Primary Topic
Financial Markets and Investment Strategies
Type
article
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article

Mean Reversion and Self-Valuation of European Common Stocks

Moon Hoe Lee
Journal of Mathematical Finance
Financial Markets and Investment Strategies
article

Mean Reversion and Self-Valuation of European Common Stocks

Moon Hoe Lee
article en

Abstract

This article presents empirical evidence that European stock markets independently determine the values of their listed common stocks. It shows that European common stocks establish their own discount rates, which in turn determine their equity values. The study models mean reversion in continuous time and demonstrates its minimal impact on prediction accuracy, indicating the efficiency of self-valuation. Mean reversion of current stock prices is an activity where investors assess the values of common stocks listed on an exchange. The speed of mean reversion of a current stock price determines the discount rate. The continuous-time first-order autoregressive model captures both the mean reversion of a current stock price and the volatility due to mean reversion, describing the dynamics of mean reversion in pricing. The closing prices of European common stocks are shown to be volatile, indicating the inherent risks of investing in common stocks.

Journal of Mathematical FinanceVol. 15(03)
University of Saskatchewan (CA)
Openalex Percentile: Top 77%
Financial Markets and Investment Strategies
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Mean Reversion and Self-Valuation of European Common Stocks — Moon Hoe Lee · Journal of Mathematical Finance (2025) | TGRS Research Map | TGRS