Drawing Inferences from Statistics Based on Multi-Year Asset Returns

31 Pages Posted: 3 Jan 2007 Last revised: 26 Apr 2011

See all articles by Matthew P. Richardson

Matthew P. Richardson

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

James H. Stock

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: April 1990

Abstract

The possibility of mean reversion in stock prices recently has been examined using statistics based on multi-year returns. Previous researchers have noted difficulties in drawing inferences about these statistics because of poor performance of the usual approximating asymptotic distributions. We therefore develop an alternative asymptotic distribution theory for statistics involving multi-year returns. These distributions differ markedly from those implied by the conventional theory. This alternative theory provides substantially better approximations to the relevant finite-sample distributions. It also leads to empirical inferences much less at odds with the hypothesis of no mean reversion.

Suggested Citation

Richardson, Matthew P. and Stock, James H., Drawing Inferences from Statistics Based on Multi-Year Asset Returns (April 1990). NBER Working Paper No. w3335. Available at SSRN: https://ssrn.com/abstract=468840

Matthew P. Richardson (Contact Author)

New York University (NYU) - Department of Finance ( email )

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National Bureau of Economic Research (NBER)

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AQR Capital Management, LLC ( email )

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James H. Stock

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Harvard University - Harvard Kennedy School (HKS) ( email )

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