IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v6y2000i2p146-162.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050020815
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-179, March.
    2. C. Bruneau, 1996. "Impulse-response analysis in econometrics," THEMA Working Papers 96-13, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    3. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 195-228.
    4. John Y. Campbell & John H. Cochrane, 1994. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," CRSP working papers 412, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    5. David M. Cutler & James M. Poterba & Lawrence H. Summers, 1991. "Speculative Dynamics," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 529-546.
    6. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    7. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    8. Gregory, Allan W. & Nason, James M. & Watt, David G., 1996. "Testing for structural breaks in cointegrated relationships," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 321-341.
    9. Myron J. Gordon & Eli Shapiro, 1956. "Capital Equipment Analysis: The Required Rate of Profit," Management Science, INFORMS, vol. 3(1), pages 102-110, October.
    10. Fama, Eugene F. & French, Kenneth R., 1988. "Dividend yields and expected stock returns," Journal of Financial Economics, Elsevier, vol. 22(1), pages 3-25, October.
    11. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    12. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    13. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    14. Bruneau, C., 1996. "Impulse-Response Analysis in Econometrics," Papers 9613, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:146-162. 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: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/REJF20 .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.