EconPapers    
Economics at your fingertips  
 

Can a Well-Fitted Equilibrium Asset-Pricing Model Produce Mean Reversion?

Marco Bonomo () and René Garcia ()

Journal of Applied Econometrics, 1994, vol. 9, issue 1, 19-29

Abstract: In recent papers, Cecchetti et al (1990) and Kandel and Stambaugh (1990) showed that negative serial correlation in long horizon returns was consistent with an equilibrium model of asset pricing. In this paper we show that their results rely on misspecified Markov switching models for the endowment process. Once the proper Markov specification is chosen for the endowment process, the model does not produce mean reversion of the magnitude detected in the data. Furthermore, the small amount of mean reversion produced by the model is due only to small sample bias. We also show that this model is unable to predict negative excess returns, contrary to empirical evidence. Copyright 1994 by John Wiley & Sons, Ltd.

Date: 1994
References: Add references at CitEc
Citations View citations in EconPapers (10) Track citations by RSS feed

Downloads: (external link)
http://links.jstor.org/sici?sici=0883-7252%2819940 ... 0.CO%3B2-3&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Working Paper: Can a well-fitted equilibrium asset pricing model produce mean reversion? (1992) Downloads
Working Paper: Can Well-Fitted Equilibrium Asset Pricing Model Produce Mean Reversion? (1991)
Working Paper: Can Well-Fitted Equilibrium Asset Pricing Model Produce Mean Reversion? (1991)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jae:japmet:v:9:y:1994:i:1:p:19-29

Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252

Access Statistics for this article

Journal of Applied Econometrics is currently edited by M. Hashem Pesaran

More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Series data maintained by Wiley-Blackwell Digital Licensing ().

 
Page updated 2017-11-18
Handle: RePEc:jae:japmet:v:9:y:1994:i:1:p:19-29