Fundamentals and asset price dynamics
Attilio Gardini (),
Giuseppe Cavaliere and
Michele Costa
Additional contact information
Attilio Gardini: University of Bologna
Statistical Methods & Applications, 2003, vol. 12, issue 2, No 7, 226 pages
Abstract:
Abstract. The relation between fundamentals and asset returns is analyzed by means of Markov-switching regression models with time-varying transition probabilities. By referring to the Italian Stock Exchange over the 1973-2002 period, we find that (i) returns ‘switch’ between a zero-expected return/low volatility state and a high expected return/high volatility state; (ii) states are persistent and hence state changes can be forecast to some extent; (iii) the probability of state changes can be explained in terms of changes in the fundamentals; (iv) fundamentals do not have a direct impact on the expected returns but they only affect the transition probability matrix. Overall, our results show that a non-linear relation between market price changes and market fundamentals can be caught within the framework of (Markov) switching regession models.
Keywords: Asset prices; Markov-switching; Nonlinear models (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations:
Downloads: (external link)
http://link.springer.com/10.1007/s10260-003-0053-3 Abstract (text/html)
Access to the full text of the articles in this series is restricted.
Related works:
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:spr:stmapp:v:12:y:2003:i:2:d:10.1007_s10260-003-0053-3
Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10260/PS2
DOI: 10.1007/s10260-003-0053-3
Access Statistics for this article
Statistical Methods & Applications is currently edited by Tommaso Proietti
More articles in Statistical Methods & Applications from Springer, Società Italiana di Statistica
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().