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

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  • Minford, Patrick
  • Peel, David
  • Meenagh, David

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.

Suggested Citation

  • Minford, Patrick & Peel, David & Meenagh, David, 2006. "Simulating Stock Returns Under Switching Regimes - A New Test of Market Efficiency," CEPR Discussion Papers 5614, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5614
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    Blog mentions

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      by chris in Stumbling and Mumbling on 2015-08-25 17:17:50
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    Citations

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    Cited by:

    1. Michael Hatcher & Patrick Minford, 2016. "Stabilisation Policy, Rational Expectations And Price-Level Versus Inflation Targeting: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 30(2), pages 327-355, April.
    2. ap Gwilym, Rhys, 2010. "Can behavioral finance models account for historical asset prices?," Economics Letters, Elsevier, vol. 108(2), pages 187-189, August.
    3. Patrick Minford, 2010. "The Banking Crisis: A Rational Interpretation," Political Studies Review, Political Studies Association, vol. 8(1), pages 40-54, January.

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    More about this item

    Keywords

    Regime switching; Stock returns; Efficient markets; Rational expectations;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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