Managing funds in the US market: how to distinguish between transitory distortions and structural changes in the stock prices?

Catherine Bruneau, Ch. Duval-Kieffer and J. P. Nicolai

The European Journal of Finance, 2000, vol. 6, issue 2, 146-162

Abstract: The paper reports estimates of a reliable fundamental value of the S&P index, standing for a long run target value in Error-Correction Modelling of the dynamics of subsequent returns. The Present Value Model suggests two fundamentals: dividends and a discount rate factor, specified as a risk free rate plus an ex ante risk premium, to capture structural breaks in the expectations. The dates of the shifts are identified by estimating recursively a cointegration relationship. Monte Carlo simulations are used to compute appropriate statistics for stationarity tests. The predictive performance of the Error-Correcting Model is then used to implement winning portfolio-investment strategies.

Keywords: Long Run Target Cointegration Structural Change Asset Management (search for similar items in EconPapers)
Date: 2000
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DOI: 10.1080/13518470050020815

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