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Simulating Stock Returns under Switching Regimes - A New Test of Market Efficiency

17 Pages Posted: 5 Jul 2006  

David Meenagh

Cardiff University Business School

Patrick Minford

Cardiff University Business School; Centre for Economic Policy Research (CEPR)

David A. Peel

Lancaster University - Management School

Date Written: April 2006

Abstract

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.

Keywords: Regime switching, stock returns, efficient markets, rational expectations

JEL Classification: C15, C5, G14

Suggested Citation

Meenagh, David and Minford, Patrick and Peel, David A., Simulating Stock Returns under Switching Regimes - A New Test of Market Efficiency (April 2006). CEPR Discussion Paper No. 5614. Available at SSRN: https://ssrn.com/abstract=913344

David Meenagh

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5198 (Phone)
+44 29 2087 4419 (Fax)

Patrick Minford (Contact Author)

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5728 (Phone)
+44 29 2087 4419 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

David Peel

Lancaster University - Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom
+44 (0)1524 593590 (Phone)
+44 (0)1524 594244 (Fax)

HOME PAGE: http://www.lancs.ac.uk/staff/peeld/

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