The Present Value Model of Us Stock Prices Redux: A New Testing Strategy and Some Evidence

31 Pages Posted: 25 Jan 2003

See all articles by Martin T. Bohl

Martin T. Bohl

University of Muenster

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Multiple version iconThere are 2 versions of this paper

Date Written: November 2002

Abstract

Relying on a present value model with time-varying expected returns, and incorporating a quite general class of processes to model bubble like stock price deviations from the long-run equilibrium, we provide empirical evidence on the US log dividend-price ratio over the 1871:1 - 2001:9 period, as well as for several sub-periods. The application of a momentum threshold autoregressive technique designed to detect asymmetric short-run adjustments to the long-run equilibrium provides empirical support in favor of the long-run validity of the present value model. Nevertheless, in the short-run, US stock prices exhibit large and persistent bubble like departures from present value prices followed by a crash.

Keywords: Present Value Model, US Stock Prices, Asymmetric Adjustment, Cointegration

JEL Classification: G12, E44, C32

Suggested Citation

Bohl, Martin T. and Siklos, Pierre L., The Present Value Model of Us Stock Prices Redux: A New Testing Strategy and Some Evidence (November 2002). Available at SSRN: https://ssrn.com/abstract=364101 or http://dx.doi.org/10.2139/ssrn.364101

Martin T. Bohl

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Pierre L. Siklos (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

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