The Price Is (Almost) Right
Most previous research tests market efficiency using average abnormal trading profits on dynamic trading strategies, and typically rejects the joint hypothesis of market efficiency and an asset pricing model. In contrast, we adopt the perspective of a buy-and-hold investor and examine stock price levels. For such an investor, the price level is more relevant than the short-horizon expected return, and betas of cash flow fundamentals are more important than high-frequency stock return betas. Our cross-sectional tests suggest that there exist specifications in which differences in relative price levels of individual stocks can be largely explained by their fundamental betas. Copyright (c) 2009 the American Finance Association.
Year of publication: |
2009
|
---|---|
Authors: | COHEN, RANDOLPH B. ; POLK, CHRISTOPHER ; VUOLTEENAHO, TUOMO |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 64.2009, 6, p. 2739-2782
|
Publisher: |
American Finance Association - AFA |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Cohen, Randolph B., (2009)
-
Money illusion in the stock market : the Modigliani-Cohn hypothesis
Cohen, Randolph B., (2004)
-
Money illusion in the stock market : the Modigliani-Cohn hypothesis
Cohen, Randolph B., (2005)
- More ...