Mean reversion in the Philippine Stock Exchange

Date of Publication


Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Management of Financial Institutions

Subject Categories

Finance and Financial Management


Ramon V. Del Rosario College of Business


Financial Management Department


Awarded as best thesis, 1996


This research paper was intended to find statistical evidence of the phenomena of mean reversion in the Philippine Stock Exchange. Specifically, this paper was intended to meet three objectives:

1) the determination of evidence with regard to the presence of mean reversion

2) the provision of a risk profile of selected stocks and a composite index and

3) the identification of a relationship of volatility and mean reversion, if any.

Based on the review of literature studied, the paper was able to identify possible avenues of research as well as points of interest regarding the phenomenon of mean reversion. The related literature provided an overview of the study as well as the general direction in which the hypotheses were guided.

The pursuit of these objectives took the form of the collection and statistical analysis of data gathered from the Philippine Stock Exchange. These statistical tests included regression analysis and correlation tests.

The paper concluded the following:

1) The stock returns, which were represented by the index, shows substantial evidence of mean reversion for the entire period. Although individual firm data do not consistently allow for the rejection of the null hypothesis of serially correlated returns, the individual stocks taken together as a portfolio provide strong evidence for the opposite.

2) Mean reversion is also found to be significantly correlated with risk levels. In other words, high volatility is associated with the mean reverting behavior of stock returns.

3) The Philippine Stock Exchange is not an efficient market. Since the sequence of returns are not serially uncorrelated, the market does not follow a random walk and is not efficient.

4) However, by looking at the subperiods which comprise the study, the researchers may conclude that during recent years, the market was relatively more efficient in contrast to the earlier years as evidenced by the absence of the mean reverting phenomenon for the period from 1988-1995.

Abstract Format






Accession Number


Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

Physical Description

197 leaves

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