Excess volatility in the US stock market: evidence to the contrary

Samih Antoine Azar

Applied Financial Economics, 2004, vol. 14, issue 18, 1307-1311

Abstract: This study re-evaluates the empirical evidence on excess volatility as pioneered by Shiller (Market Volatility, MIT Press, Cambridge, MA). The results show that a simple, non-dynamic, model of the price of the market stock as a function of the dividend on the market is supported. Moreover the evidence on cointegration between the real market stock price and its real dividend is weaker than previously reported. The study shows strong evidence to conclude that excess volatility is absent from the US stock market, which implies that this market is more rational than has been previously thought.

Date: 2004
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DOI: 10.1080/0960310042000282076

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