Structural Breaks, Incomplete Information, and Stock Prices.
This article presents empirical evidence on the existence of structural breaks in the fundamentals process underlying U.S. stock prices. I develop an asset-pricing model that represents breaks in the context of a Markov switching process with an expanding set of nonrecurring states. Different hypotheses on how investors form expectations about future dividends after a break are proposed and analyzed. A model in which investors do not have full information about the parameters of the dividend process but gradually update their beliefs as new information arrives is shown to induce skewness, kurtosis, volatility clustering, and serial correlation in stock returns after a break.
Year of publication: |
2001
|
---|---|
Authors: | Timmermann, Allan |
Published in: |
Journal of Business & Economic Statistics. - American Statistical Association. - Vol. 19.2001, 3, p. 299-314
|
Publisher: |
American Statistical Association |
Saved in:
Saved in favorites
Similar items by person
-
Common Factors in Latin America's Business Cycles
Timmermann, Allan, (2006)
-
An Evaluation of the World Economic Outlook Forecasts
Timmermann, Allan, (2006)
-
Learning, structural instability and present value calculations
Pesaran, Mohammad Hashem, (2006)
- More ...