An Empirical Investigation of the Cross‐Industry Variation in Mean Reversion of Australian Stock Betas

Abstract

In this paper we empirically investigate the tendency for beta risk to mean‐revert across industries. Using a sample of Australian stocks over the ten‐year period 1989 to 1998, our key results are as follows. We generally observe evidence of a mean reversion tendency — in particular, this seems most appropriate for the Gold, Energy, Finance and Consumer industry groupings. Moreover, there is some evidence that the mean reversion of beta is different across industries. Furthermore, we see that the maximum mean reversion beta occurs for the Gold industry — a value of approximately 1.4 (1.6) for the OLS (Scholes‐Williams) beta analysis. On the other hand, the minimum mean reversion beta based on the ‘All Stocks’ OLS analysis occurs for Miscellaneous Industries with a value of 0.4, while a similar minimum mean reversion beta based on the Scholes‐Williams analysis occurs for the Consumer industry grouping.

Citation

BROOKS, R., FAFF, R. and JOSEV, T. (2001), "An Empirical Investigation of the Cross‐Industry Variation in Mean Reversion of Australian Stock Betas", Pacific Accounting Review, Vol. 13 No. 2, pp. 1-16. https://doi.org/10.1108/eb037958