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Revisiting Shiller’s excess volatility hypothesis

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  • Dooruj Rambaccussing

Abstract

One of the cornerstone of financial anomalies is that there exists money making opportunities. Shiller’s excess volatility theory is re-investigated from the perspective of a trading strategy where the present value is computed using a series of simple econometric models to forecast the present value. The results show that the excess volatility may not be exploited given the data available until time t. However, when learning is introduced empirically, the simple trading strategy may offer profits, but which are likely to disappear once transaction costs are considered.

Suggested Citation

  • Dooruj Rambaccussing, 2015. "Revisiting Shiller’s excess volatility hypothesis," Dundee Discussion Papers in Economics 287, Economic Studies, University of Dundee.
    • Handle: RePEc:dun:dpaper:287
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    File URL: http://www.dundee.ac.uk/media/dundeewebsite/economicstudies/documents/discussion/DDPE_287.pdf
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    More about this item

    Keywords

    Present Value; Excess Volatility;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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