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Managing funds in the US market: how to distinguish between transitory distortions and structural changes in the stock prices?

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  • Catherine Bruneau
  • Ch. Duval-Kieffer
  • J. P. Nicolai

Abstract

The paper reports estimates of a reliable fundamental value of the S&P index, standing for a long run target value in Error-Correction Modelling of the dynamics of subsequent returns. The Present Value Model suggests two fundamentals: dividends and a discount rate factor, specified as a risk free rate plus an ex ante risk premium, to capture structural breaks in the expectations. The dates of the shifts are identified by estimating recursively a cointegration relationship. Monte Carlo simulations are used to compute appropriate statistics for stationarity tests. The predictive performance of the Error-Correcting Model is then used to implement winning portfolio-investment strategies.

Suggested Citation

  • Catherine Bruneau & Ch. Duval-Kieffer & J. P. Nicolai, 2000. "Managing funds in the US market: how to distinguish between transitory distortions and structural changes in the stock prices?," The European Journal of Finance, Taylor & Francis Journals, vol. 6(2), pages 146-162.
    • Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:146-162
    DOI: 10.1080/13518470050020815
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    References listed on IDEAS

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    Cited by:

    1. Catherine Bruneau & Souad Cherfouh, 2015. "Long-run equilibrium for the Greater Paris office market and short-run adjustments," Journal of Property Research, Taylor & Francis Journals, vol. 32(4), pages 301-323, December.

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