Mean Reversion in Equilibrium Asset Prices
This paper demonstrates that negative serial correlation in long horizon stock returns is consistent with an equilibrium model of asset pricing. When investors display only a moderate desire to smooth their consumption, commonly used measures of mean reversion in stock prices calculated from histori...
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Veröffentlicht in: | The American economic review 1990-06, Vol.80 (3), p.398-418 |
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description | This paper demonstrates that negative serial correlation in long horizon stock returns is consistent with an equilibrium model of asset pricing. When investors display only a moderate desire to smooth their consumption, commonly used measures of mean reversion in stock prices calculated from historical returns data nearly always lie within a 60 percent confidence interval of the median of the Monte Carlo distributions implied by our equilibrium model. From this evidence, we conclude that the degree of serial correlation in the data could plausibly have been generated by our model. |
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When investors display only a moderate desire to smooth their consumption, commonly used measures of mean reversion in stock prices calculated from historical returns data nearly always lie within a 60 percent confidence interval of the median of the Monte Carlo distributions implied by our equilibrium model. From this evidence, we conclude that the degree of serial correlation in the data could plausibly have been generated by our model.</description><identifier>ISSN: 0002-8282</identifier><identifier>EISSN: 1944-7981</identifier><identifier>CODEN: AENRAA</identifier><language>eng</language><publisher>Menasha, Wis: American Economic Association</publisher><subject>Consumption ; Dividends ; Economic models ; Economic theory ; Economics ; Effects ; Endowments ; Equilibrium ; GNP ; Gross National Product ; Market equilibrium ; Markov analysis ; Markov models ; Monte Carlo simulation ; Rates of return ; Regression coefficients ; Return on investment ; Securities ; Securities prices ; Statistical analysis ; Statistical median ; Statistical variance ; Stock exchange speculation ; Stock prices ; Studies ; Utility functions</subject><ispartof>The American economic review, 1990-06, Vol.80 (3), p.398-418</ispartof><rights>Copyright 1990 American Economic Association</rights><rights>Copyright American Economic Association Jun 1990</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://www.jstor.org/stable/pdf/2006674$$EPDF$$P50$$Gjstor$$H</linktopdf><linktohtml>$$Uhttps://www.jstor.org/stable/2006674$$EHTML$$P50$$Gjstor$$H</linktohtml><link.rule.ids>314,780,784,803,27869,58017,58250</link.rule.ids></links><search><creatorcontrib>Cecchetti, Stephen G.</creatorcontrib><creatorcontrib>Lam, Pok-Sang</creatorcontrib><creatorcontrib>Mark, Nelson C.</creatorcontrib><title>Mean Reversion in Equilibrium Asset Prices</title><title>The American economic review</title><description>This paper demonstrates that negative serial correlation in long horizon stock returns is consistent with an equilibrium model of asset pricing. When investors display only a moderate desire to smooth their consumption, commonly used measures of mean reversion in stock prices calculated from historical returns data nearly always lie within a 60 percent confidence interval of the median of the Monte Carlo distributions implied by our equilibrium model. From this evidence, we conclude that the degree of serial correlation in the data could plausibly have been generated by our model.</description><subject>Consumption</subject><subject>Dividends</subject><subject>Economic models</subject><subject>Economic theory</subject><subject>Economics</subject><subject>Effects</subject><subject>Endowments</subject><subject>Equilibrium</subject><subject>GNP</subject><subject>Gross National Product</subject><subject>Market equilibrium</subject><subject>Markov analysis</subject><subject>Markov models</subject><subject>Monte Carlo simulation</subject><subject>Rates of return</subject><subject>Regression coefficients</subject><subject>Return on investment</subject><subject>Securities</subject><subject>Securities prices</subject><subject>Statistical analysis</subject><subject>Statistical median</subject><subject>Statistical variance</subject><subject>Stock exchange speculation</subject><subject>Stock prices</subject><subject>Studies</subject><subject>Utility functions</subject><issn>0002-8282</issn><issn>1944-7981</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>1990</creationdate><recordtype>article</recordtype><sourceid>K30</sourceid><recordid>eNp1zstKxDAYBeAgCtbRN3BRFFwIhdyay3IYxlEYUUTXJU3-SEovM0kr-PZ2GFeCq8OBj8M5QRnRnBdSK3KKMowxLRRV9BxdpNTgQycyQ_fPYPr8Db4gpjD0eejz9X4KbahjmLp8mRKM-WsMFtIlOvOmTXD1mwv08bB-Xz0W25fN02q5LT5pycdCU6O81r70TnrmpMVS1VJgcBwYd8Ybx4S1woImktVWlaBqp52qraFUc7ZAd8fdXRz2E6Sx6kKy0Lamh2FKFRNaspIf4M0f2AxT7OdvFWUMMyI0ntHtf4hQpQXHVJezuj6qJo1DrHYxdCZ-VxRjISRnP4qeYQk</recordid><startdate>19900601</startdate><enddate>19900601</enddate><creator>Cecchetti, Stephen G.</creator><creator>Lam, Pok-Sang</creator><creator>Mark, Nelson C.</creator><general>American Economic Association</general><scope>EOLOZ</scope><scope>FKUCP</scope><scope>HZAIM</scope><scope>K30</scope><scope>PAAUG</scope><scope>PAWHS</scope><scope>PAWZZ</scope><scope>PAXOH</scope><scope>PBHAV</scope><scope>PBQSW</scope><scope>PBYQZ</scope><scope>PCIWU</scope><scope>PCMID</scope><scope>PCZJX</scope><scope>PDGRG</scope><scope>PDWWI</scope><scope>PETMR</scope><scope>PFVGT</scope><scope>PGXDX</scope><scope>PIHIL</scope><scope>PISVA</scope><scope>PJCTQ</scope><scope>PJTMS</scope><scope>PLCHJ</scope><scope>PMHAD</scope><scope>PNQDJ</scope><scope>POUND</scope><scope>PPLAD</scope><scope>PQAPC</scope><scope>PQCAN</scope><scope>PQCMW</scope><scope>PQEME</scope><scope>PQHKH</scope><scope>PQMID</scope><scope>PQNCT</scope><scope>PQNET</scope><scope>PQSCT</scope><scope>PQSET</scope><scope>PSVJG</scope><scope>PVMQY</scope><scope>PZGFC</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><scope>K9.</scope></search><sort><creationdate>19900601</creationdate><title>Mean Reversion in Equilibrium Asset Prices</title><author>Cecchetti, Stephen G. ; Lam, Pok-Sang ; Mark, Nelson C.</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-g254t-92a8f99f5fd7f3d7c078b760ed4e34dafad36cc6ce9173bc85e8bd9d8bca22943</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>1990</creationdate><topic>Consumption</topic><topic>Dividends</topic><topic>Economic models</topic><topic>Economic theory</topic><topic>Economics</topic><topic>Effects</topic><topic>Endowments</topic><topic>Equilibrium</topic><topic>GNP</topic><topic>Gross National Product</topic><topic>Market equilibrium</topic><topic>Markov analysis</topic><topic>Markov models</topic><topic>Monte Carlo simulation</topic><topic>Rates of return</topic><topic>Regression coefficients</topic><topic>Return on investment</topic><topic>Securities</topic><topic>Securities prices</topic><topic>Statistical analysis</topic><topic>Statistical median</topic><topic>Statistical variance</topic><topic>Stock exchange speculation</topic><topic>Stock prices</topic><topic>Studies</topic><topic>Utility functions</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Cecchetti, Stephen G.</creatorcontrib><creatorcontrib>Lam, Pok-Sang</creatorcontrib><creatorcontrib>Mark, Nelson C.</creatorcontrib><collection>Periodicals Index Online Segment 01</collection><collection>Periodicals Index Online Segment 04</collection><collection>Periodicals Index Online Segment 26</collection><collection>Periodicals Index Online</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - 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When investors display only a moderate desire to smooth their consumption, commonly used measures of mean reversion in stock prices calculated from historical returns data nearly always lie within a 60 percent confidence interval of the median of the Monte Carlo distributions implied by our equilibrium model. From this evidence, we conclude that the degree of serial correlation in the data could plausibly have been generated by our model.</abstract><cop>Menasha, Wis</cop><pub>American Economic Association</pub><tpages>21</tpages></addata></record> |
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source | Periodicals Index Online; EBSCOhost Business Source Complete; JSTOR Archive Collection A-Z Listing |
subjects | Consumption Dividends Economic models Economic theory Economics Effects Endowments Equilibrium GNP Gross National Product Market equilibrium Markov analysis Markov models Monte Carlo simulation Rates of return Regression coefficients Return on investment Securities Securities prices Statistical analysis Statistical median Statistical variance Stock exchange speculation Stock prices Studies Utility functions |
title | Mean Reversion in Equilibrium Asset Prices |
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