Actual and Warranted Relations between Asset Prices

Andrea E Beltratti and Robert Shiller

Oxford Economic Papers, 1993, vol. 45, issue 3, 387-402

Abstract: One method of testing efficient-markets present-value models for speculative asset prices has been to test whether the variance of price changes exceeds theoretical variance bounds implied by the models. This paper extends this method from variances to covariances, so that one can test whether pairs of speculative asset prices move together too much relative to bounds implied by the efficient-markets models. The new method is used to examine the historical covariance between the U.K. and U.S. stock markets, 1919-89. In this case, no evidence is found of excess covariance between the two markets. Copyright 1993 by Royal Economic Society.

Date: 1993
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Related works:
Working Paper: Actual and Warranted Relations Between Asset Prices (1991)
Working Paper: Actual and Warranted Relations Between Asset Prices (1991)
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