Structural Breaks, Incomplete Information and Stock Prices
Allan Timmermann
FMG Discussion Papers from Financial Markets Group
Abstract:
This paper presents new empirical evidence on the existence of structural breaks in the fundamentals process underlying US stock prices and develops an asset pricing model which considers the possibility of such breaks. Three break points are identified: The Great Depression, World War II, and the oil price shocks around 1974. Different hypotheses for how investors form expectations about future dividends after a break are proposed and analysed. A model in which investors do not have full information about the parameters of the dividend process but gradually update their beliefs as new information arrives is shown to induce volatility clustering and serially correlated stock returns after a break. These patterns are confirmed to exist in US stock returns around the time of the breakpoints.
Date: 1998-10
References: Add references at CitEc
Citations:
Downloads: (external link)
http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp311.pdf (application/pdf)
Related works:
Journal Article: Structural Breaks, Incomplete Information, and Stock Prices (2001)
Working Paper: Structural Breaks, Incomplete Information and Stock Prices (2001) 
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:fmg:fmgdps:dp311
Access Statistics for this paper
More papers in FMG Discussion Papers from Financial Markets Group
Bibliographic data for series maintained by The FMG Administration ().