Noncausality and Asset Pricing
AbstractMisspecification of agents' information sets or expectation formation mechanisms maylead to noncausal autoregressive representations of asset prices. Annual US stock prices are found to be noncausal, implying that agents' expectations are not revealed to an outside observer such as an econometrician observing only realized market data. A simulation study shows that noncausal processes can be generated by asset-pricing models featuring heterogeneous expectations.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 30519.
Date of creation: 08 Apr 2011
Date of revision:
noncausal autoregressions; stock prices; heterogeneous expectations;
Other versions of this item:
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-07 (All new papers)
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