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Industry and Time Specific Deviations from Fundamental Values in a Random Coefficient Model

  • Leonardo Becchetti


    (University of Rome II - Faculty of Economics)

  • Roberto Rocci


    (University of Rome II - Faculty of Economics)

  • Giovanni Trovato


    (University of Rome II - Faculty of Economics)

The paper analyzes the relationship between stock prices and fundamentals for a large sample of US stocks in the last ten years using a random coefficient model. Heterogeneity and omitted variable bias are properly taken into account with model coefficients being allowed to vary across time and industries. The random coefficient model allows to track waves of reliance on analysts forecasts and non fundamental stock price components across time.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 52.

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Length: 25
Date of creation: 08 Apr 2004
Date of revision:
Handle: RePEc:rtv:ceisrp:52
Contact details of provider: Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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  18. Frankel, Richard & Lee, Charles M. C., 1998. "Accounting valuation, market expectation, and cross-sectional stock returns," Journal of Accounting and Economics, Elsevier, vol. 25(3), pages 283-319, June.
  19. Diamond, Douglas W. & Verrecchia, Robert E., 1981. "Information aggregation in a noisy rational expectations economy," Journal of Financial Economics, Elsevier, vol. 9(3), pages 221-235, September.
  20. Leonardo Becchetti & Fabrizio Adriani, 2004. "Do high-tech stock prices revert to their 'fundamental' value?," Applied Financial Economics, Taylor & Francis Journals, vol. 14(7), pages 461-476.
  21. Marco Alfò & Giovanni Trovato, 2004. "Semiparametric mixture models for multivariate count data, with application," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 426-454, December.
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  23. Joe Mattey and Richard Meese., 1986. "Empirical Assessment of Present Value Relations," Research Program in Finance Working Papers 162, University of California at Berkeley.
  24. Asquith, Paul & Mullins, David W, Jr, 1983. "The Impact of Initiating Dividend Payments on Shareholders' Wealth," The Journal of Business, University of Chicago Press, vol. 56(1), pages 77-96, January.
  25. Charles M. C. Lee & James Myers & Bhaskaran Swaminathan, 1999. "What is the Intrinsic Value of the Dow?," Journal of Finance, American Finance Association, vol. 54(5), pages 1693-1741, October.
  26. Asch, Peter & Malkiel, Burton G. & Quandt, Richard E., 1982. "Racetrack betting and informed behavior," Journal of Financial Economics, Elsevier, vol. 10(2), pages 187-194, July.
  27. N. Gregory Mankiw & David Romer & Matthew D. Shapiro, 1991. "Stock Market Forecastability and Volatility: A Statistical Appraisal," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 455-477.
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