Nonnormalities and tests of asset pricing theories

Article Abstract:

The robustness of the multivariate test of Gibbons, Ross, and Shanken (1986) to nonnormalities in the residual covariance mix is examined. After considering the relative performance of various tests of normality, simulation techniques are used to determine the effects of nonnormalities on the multivariate test. It is found that, where the sample nonnormalities are severe, the size and/or power of the test can be seriously misstated. However, it is also shown that these extreme sample values may overestimate the population parameters. Hence,we conclude that the multivariate test is reasonably robust with respect to typical levels of nonnormality. (Reprinted by permission of the publisher.)

Analysis, Capital assets, Financial research

---

Are stock returns predictable? A test using Markov chains

Article Abstract:

This paper uses a Markov chain model to test the random walk hypothesis of stock prices. Given a time series of returns, a Markov chain is defined by letting one state represent high returns and the other represent low returns. The random walk hypothesis restricts the transition probabilities of the Markov chain to be equal irrespective of the prior years. Annual real returns are shown to exhibit significant nonrandom walk behavior in the sense that low (high) returns tend to follow runs of high (low) returns in the postwar period. (Reprinted by permission of the publisher.)

Research, Usage, Stocks, Forecasts and trends, Stock-exchange, Stock exchanges, Stock prices, Stock price forecasting, Markov processes

---

Similar abstracts:

• Abstracts: Predicting stock returns in an efficient market. Earnings announcements, stock price adjustment, and the existence of option markets
• Abstracts: Predicting volatility in the foreign exchange market. Purchasing power parity in the long run
• Abstracts: Distinguishing market segments to assess price responsiveness. part 2 Retirement versus age: assessing the efficacy of retirement as a segmentation variable
• Abstracts: Interest rate management: swaps, options and swaptions. Investors: for or against translation hedging?
• Abstracts: Trading halts and market activity: an analysis of volume at the open and the close. Insider trading in the OTC market

This website is not affiliated with document authors or copyright owners. This page is provided for informational purposes only. Unintentional errors are possible.