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Theory of Investment Behavior and Empirical Analysis of Stock Market Price Relatives

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  • Fred B. Renwick

    (New York University and Bankers Trust Company, New York City)

Abstract

This paper examines the hypothesis that "outliers" observed in empirical frequency distributions of share price relatives can be anticipated and explained via the theory of financial analysis. Specifically, price is treated as a ratio estimate. Each term in the estimate is subject to error, and both numerator and denominator of the ratio are considered to be normally distributed. Then deviations from the ideal Gaussian form for the empirical frequency distributions of change in price are explained in terms of fundamental economic variables that interact to determine numerical values for the numerator and denominator of the ratio.

Suggested Citation

  • Fred B. Renwick, 1968. "Theory of Investment Behavior and Empirical Analysis of Stock Market Price Relatives," Management Science, INFORMS, vol. 15(1), pages 57-71, September.
    • Handle: RePEc:inm:ormnsc:v:15:y:1968:i:1:p:57-71
    DOI: 10.1287/mnsc.15.1.57
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