Noncausality and Asset Pricing

Matthijs Lof

MPRA Paper from University Library of Munich, Germany

Abstract: Misspecification of agents' information sets or expectation formation mechanisms maylead to noncausal autoregressive representations of asset prices. Annual US stock prices are found to be noncausal, implying that agents' expectations are not revealed to an outside observer such as an econometrician observing only realized market data. A simulation study shows that noncausal processes can be generated by asset-pricing models featuring heterogeneous expectations.

Keywords: noncausal autoregressions; stock prices; heterogeneous expectations (search for similar items in EconPapers)
JEL-codes: C59 D84 G12 (search for similar items in EconPapers)
Date: 2011-04-08
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Citations: View citations in EconPapers (3)

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Journal Article: Noncausality and asset pricing (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:30519

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