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This thesis examines the predictability of asset prices for an Australian\ud investor. Evidence supporting the mean reversion alternative to the random walk\ud hypothesis is presented, with a discussion of potential models, both linear and nonlinear.\ud The normality and homoscedasticity assumptions are investigated and their\ud use in asset models is validated. A study of fund performance is carried out and value\ud is found to be added by timing asset allocation but not by stock selection, though\ud there is no correlation between past and present rankings of managers. The difficulty\ud of proving mean reversion or reversion to trend, other than for large deviations or\ud extremes, and the actual performance by managers, implies a strategy of allocation at\ud these extremes. That is, managers should adhere to their policy portfolios and let\ud markets run short term; making appropriate large strategic moves when markets have\ud moved to extremes

Topics:
0102 Applied Mathematics, 0802 Computation Theory and Mathematics, 1502 Banking, Finance and Investment, School of Engineering and Science, Stock price forecasting, Mathematical models, Asset allocation, Investments, Portfolio management

Year: 1996

OAI identifier:
oai:eprints.vu.edu.au:18168

Provided by:
Victoria University Eprints Repository

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