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One Simple Test of Samuelson's Dictum for the Stock Market

  • Jeeman Jung
  • Robert J. Shiller

Samuelson (1998) offered the dictum that the stock market is 'micro efficient' but 'macro inefficient.' That is, the efficient markets hypothesis works much better for individual stocks than it does for the aggregate stock market. In this paper, we present one simple test, based both on regressions and on a simple scatter diagram that vividly illustrates that there is some truth to Samuelson's dictum. The data comprise all U.S. firms on the CRSP tape that have survived since 1926.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9348.

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Date of creation: Nov 2002
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Publication status: published as Jung, Jeeman and Robert J. Shiller. "Samuelson's Dictum And The Stock Market," Economic Inquiry, v43(2,Apr), 2005, 201-228.
Handle: RePEc:nbr:nberwo:9348
Note: AP EFG ME
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  1. Campbell, J.Y. & Shiller, R.J., 1988. "Stock Prices, Earnings And Expected Dividends," Papers 334, Princeton, Department of Economics - Econometric Research Program.
  2. Campbell, John & Yogo, Motohiro, 2006. "Efficient tests of stock return predictability," Scholarly Articles 3122601, Harvard University Department of Economics.
  3. James M. Poterba & Lawrence H. Summers, 1987. "Mean Reversion in Stock Prices: Evidence and Implications," NBER Working Papers 2343, National Bureau of Economic Research, Inc.
  4. Campbell, John, 1991. "A Variance Decomposition for Stock Returns," Scholarly Articles 3207695, Harvard University Department of Economics.
  5. Jeffrey C. Fuhrer & Scott Schuh, 1998. "Beyond shocks: what causes business cycles?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun).
  6. Graham Elliott & James H. Stock, 1992. "Inference in Time Series Regression When the Order of Integration of a Regressor is Unknown," NBER Technical Working Papers 0122, National Bureau of Economic Research, Inc.
  7. repec:cup:etheor:v:10:y:1994:i:3-4:p:672-700 is not listed on IDEAS
  8. Randolph B. Cohen & Christopher Polk & Tuomo Vuolteenaho, 2003. "The Value Spread," Journal of Finance, American Finance Association, vol. 58(2), pages 609-642, 04.
  9. 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 421-36, June.
  10. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-74, May.
  11. Paul A. Samuelson, 1998. "Summing up on business cycles: opening address," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 33-36.
  12. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
  13. Robert J. Shiller & John Y. Campbell, 1986. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," Cowles Foundation Discussion Papers 812, Cowles Foundation for Research in Economics, Yale University.
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