Simulating Stock Returns under Switching Regimes - A New Test of Market Efficiency
Cardiff University Business School
Cardiff University Business School; Centre for Economic Policy Research (CEPR)
David A. Peel
Lancaster University - Management School
CEPR Discussion Paper No. 5614
A model of profits switches between four regimes with fixed probabilities; the rationally expected profits stream implies the stock market value. This efficient market model is not rejected by UK post-war time-series behaviour of either profits or the FTSE index.
Number of Pages in PDF File: 17
Keywords: Regime switching, stock returns, efficient markets, rational expectations
JEL Classification: C15, C5, G14
Date posted: July 5, 2006
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