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Paper Stats:
Abstract Views: 3285
Downloads: 461
Download Rank: 8724
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Continuation and Reversal in US Valuation Ratios
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ANA-MARIA FUERTES
Cass Business School, City University London
JERRY COAKLEY
University of Essex - Department of Accounting, Finance & Management
Essex Finance Centre Discussion Paper 04/12; EFA 2003 Annual Conference Paper No. 840
Cass Business School Research Paper
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Abstract:
We employ a two-regime, nonlinear model and more than a century of data to investigate the time series behavior of the S&P Composite price-dividends and price-earnings ratios. On average, the ratios display continuation fuelled by investor sentiment in bull markets but they adjust toward their long run equilibrium levels in bear markets. Impulse response functions that simulate the effect of a shock on the future evolution of the ratios exhibit the typical underreaction-overreaction time profile postulated in behavioral theories of stock returns. Our results indicate that market sentiment plays an important role in the short run but fundamentals dominate in the long run ensuring overall mean-reversion.
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Keywords: Behavioral finance, underreaction-overreaction, threshold autoregression
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JEL Classifications: C40, G12
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Accepted Paper Series
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Suggested Citation
Fuertes, Ana-Maria and Coakley, Jerry, "Continuation and Reversal in US Valuation Ratios"
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Essex Finance Centre Discussion Paper 04/12; EFA 2003 Annual Conference Paper No. 840 Available at SSRN: http://ssrn.com/abstract=421260
or DOI: 10.2139/ssrn.421260
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Contact Information for
JERRY
COAKLEY
(Contact Author)
Email address for JERRY
COAKLEY
University of Essex - Department of Accounting, Finance & Management
Wivenhoe Park
Colchester
CO4 3SQ
United Kingdom
+44 1206 872455 (Phone)
+44 1206 873429 (Fax)
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Contact Information for
ANA-MARIA
FUERTES
Email address for ANA-MARIA
FUERTES
Cass Business School, City University London
Faculty of Finance
106 Bunhill Row
London EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)
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Jul 26, 2003 |
678K
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