Another Look to the Price-Dividend Ratio: A Markov-Switching Approach
AbstractThis paper analyzes the stationarity of this ratio in the context of a Markov-switching model Ã la Hamilton (1989) where an asymmetric speed of adjustment is introduced. This particular specification robustly supports a nonlinear reversion process and identifies two relevant episodes: the post-war period from the mid-50â€™s to the mid-70â€™s and the so called â€œ90â€™s boomâ€ period. A three-regime Markov-switching model displays the best regime identification and reveals that only the first part of the 90â€™s boom (1985-1995) and the post-war period are near-nonstationary states. Interestingly, the last part of the 90â€™s boom (1996-2000), characterized by a growing price-dividend ratio, is entirely attributed to a regime featuring a highly reverting process.
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Bibliographic InfoPaper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 2008-09.
Date of creation: Jul 2008
Date of revision:
Postal: Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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