Are Short-Horizon Equity Returns Predictable? Evidence from Large and Frequently Traded Italian Stocks
We analyze the serial correlation of the weekly returns of the MIB and MIB30 indexes over the period 1985-1997 from two different perspectives. First, we explore whether the observed serial dependence of returns is consistent with the random walk model. This has been done by testing two specifications of the model. We find that the first specification, given by the hypothesis of i.i.d. returns, is clearly rejected by the data, while the statistical evidence against the second specification, given by the more general hypothesis of uncorrelated or linearly independent returns, is much weaker, especially for the MIB30 returns. In the second part of the paper we study the possibility that a serially correlated process implied by a specific model of time-variation in expected returns could generate a degree of linear dependence similar to that observed in actual returns. We find that a combination of fast mean reversion in expected returns and small pricing errors in realized returns produces an autocorrelation pattern similar to that actually observed.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Volume (Year): 58 (1999)
Issue (Month): 2 (September)
|Contact details of provider:|| Postal: via Sarfatti, 25 - 20136 Milano (Italy)|
Web page: http://www.gde.unibocconi.it/
|Order Information:|| Web: http://www.gde.unibocconi.it Email: |
When requesting a correction, please mention this item's handle: RePEc:gde:journl:gde_v58_n2_p241-267. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Erika Somma)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.