Using a new Bayesian method for the analysis of diffusion processes, this article finds that the nonlinear drift in interest rates found in a number of previous studies can be confirmed only under prior distributions that are best described as informative. The assumption of stationarity, which is common in the literature, represents a nontrivial prior belief about the shape of the drift functio...

We study a dynamic asset allocation problem in which expected stock returns are predictable, focusing on an investor with a medium-term horizon of up to five years. At these horizons, both return continuation (momentum) and mean-reversion are of central importance in the asset allocation problem. Researchers have extensively investigated the impact of mean-reversion on optimal portfolio choice,...

financial scientists have always been eager to distinguish between whether the price series could be random walk (unit root) or mean reverting processes.by a random walk we mean that accruing shocks to the system have permanent impacts and prices do not revert to their previous trend path, in addition, regarding to random walk processes the price series volatility could increase with out any li...