Mean reversion in stock prices: an error-correction approach

Article Abstract:

The existence of a predictable component in stock prices in the form of a slowing decaying stationary component has been found in recent studies. Error-correction models are used to analyze the serial correlation in stock prices. Co-integrating regression analysis shows a long-run relationship between equity prices and dividends and the fuel price index. The supposition that time-varying discount rates and autocorrelated cash flow expectations partly determine the serial correlation in stock prices is supported by the error-correction models.

Usage, Prices and rates, Stocks, Stock prices, Regression analysis

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The management of foreign currency risk: derivatives use and the natural hedge of geographic diversification

Article Abstract:

An investigation into the use of foreign exchange derivatives (FXDs) to manage currency risk, by US conglomerate firms, found the firms increased their usage of FXDs depending on the level of their foreign currency exposure. Companies did not favour the use of geographical diversification as a natural hedge if their organisation was geographically concentrated. Some 174 US firms were indcluded in the study which took place in 1994-95. There has been limited information of how multinational firms use FXDs.

Asset & Risk Management, Foreign Currency Management, Research, United States, International business enterprises, Multinational corporations, Risk management, Foreign exchange, Foreign exchange market

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