DO BIST SUSTAINABILITY STOCK INDEXES EXHIBIT MEAN-REVERSION BEHAVIOR? FINDINGS FROM THE FOURIER-BASED TEST

Authors : Onur Şeyranlıoğlu, Çağlar Sözen, Arif Çilek, Ayşegül Han

Pages : 165-181

Doi:10.46849/guiibd.1808232

View : 176 | Download : 197

Publication Date : 2025-12-31

Article Type : Research Paper

Abstract :The mean reversion approach in stock prices refers to the tendency of prices to return to their average over a certain period. This concept assumes that price fluctuations deviate temporarily from the mean and eventually revert to it. At this point, investors can take advantage of market fluctuations and explore alternative opportunities by identifying stocks that exhibit mean reversion behaviour. Mean reversion implies that past stock prices can be used to predict future price movements. Conversely, when prices do not revert to the mean, it suggests that shocks have permanent effects; therefore, past prices are insufficient for forecasting the future, and long-term market volatility may increase. In this context, the present study examines the mean reversion behaviour of sustainability-themed stock indices in Borsa Istanbul (BIST). Sustainability indices include companies that consider Environmental, Social, and Corporate Governance (ESG) criteria and offer investors the opportunity to invest in firms that adopt these principles. For this purpose, the mean reversion tendency of the BIST Sustainability Index (XUSRD) and the BIST Sustainability 25 Index (XSD25) was investigated using daily data covering the period from November 22, 2022, to August 15, 2025. To test the mean reversion of prices, the study employs the Augmented Dickey-Fuller (ADF), Kwiatkowski et al. (KPSS) (1992), Christopoulos and León-Ledesma (2010) Fourier ADF, Becker et al. (2006) Fourier KPSS (FKPSS), and Christopoulos and León-Ledesma (2011) Fractional Frequency Fourier ADF (FFFADF) tests. According to the test results, both stock indices contain a unit root at their level values. In other words, the indices do not exhibit mean reversion behaviour. These findings indicate that the future prices of the BIST XUSRD and XSD25 indices cannot be predicted based on past price movements and that price volatility may persist in the long term. Considering these results, it is recommended that investors in BIST sustainability indices focus on fundamental analysis and long-term strategies rather than price-based forecasting methods. Moreover, since prices do not exhibit mean reversion, investors should effectively utilize risk management tools.
Keywords : BİST Sürdürülebilirlik (XUSRD), BİST Sürdürülebilirlik 25 (XSD25), Ortalamaya Dönüş, Fourier Bazlı Testler

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