Ex-Post Rational Price Approximations and the Empirical Reliability of the Present-Value Relation
Excess volatility and regression tests have resulted in apparent rejections of the present-value relation when ex-post price approximations are employed. These approximations are based upon a sample terminal condition for prices, are not ergodic time-series, and do not result in statistics with readily calculable standard errors. Kleidon (1986) has demonstrated that ex-post price approximations can subtly affect the reliability of certain volatility tests. We use a bootstrapped cointegration model to demonstrate some of these same effects in Mankiw, Romer and Shapiro's (1985) volatility statistics. The volatility statistics rarely have positive expected value in finite samples and still do not reject the present-value relation. Approximations based upon a "rolling" terminal condition result in volatility statistics which have calculable large-sample errors, but even these standard errors greatly overstate the accuracy of volatility statistics in small samples. Regression tests of the present value relation are also affected by the price approximations. Copyright 1989 by John Wiley & Sons, Ltd.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 4 (1989)
Issue (Month): 2 (April-June)
|Contact details of provider:|| Web page: http://www.interscience.wiley.com/jpages/0883-7252/ |
|Order Information:|| Web: http://www3.interscience.wiley.com/jcatalog/subscribe.jsp?issn=0883-7252 Email: |
When requesting a correction, please mention this item's handle: RePEc:jae:japmet:v:4:y:1989:i:2:p:139-59. 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: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
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.