Abstract
Shiller’s notion of perfect foresight prices is adapted to a crossectional study of 400 firms. Distribution-free statistics, which are unencumbered by the restrictive assumptions underlying parametric methods such as those used in the “implied variance bounds” literature, are used to test hypotheses concerning market efficiency. Market prices of equities are shown, for the period studied, to have been distributed above and below the corresponding perfect foresight prices; and some support is found for the claim that contemporaneous information was not fully impounded in all market prices.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Black, F., 1986, Noise, Journal of Finance 41, 529–542.
Elton, E. J. and M. J. Gruber, 1984, Modern Portfolio Theory and Investment Analysis (2d ed., John Wiley & Sons, New York) 394ff.
Flavin, M. A. 1983, Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence, Journal of Political Economy 91 (No. 6), 929–956.
Grossman, S. J. and R. J. Shiller, 1981, The Determinants of the Variability of Stock Market Prices, American Economic Review 71, 222–227.
Kleidon, A. W., 1986a, Bias in Small Sample Tests of Stock Price Rationality, Journal of Business 59 (No. 2), 237–261.
Kleidon, A. W., 1986b, Variance Bounds Tests and Stock Price Valuation Models, Journal of Political Economy 94 (NO. 5), 953–1001.
LeRoy, S. F. and R. D. Porter, 1981, The Present-Value Relation: Tests Based on Implied Variance Bounds, Econometrica 49, 555–574.
Michener, R. W., 1982, Variance Bounds in a Simple Model of Asset Pricing, Journal of Political Economy 90, 166–175.
Pierce, D. K., 1987, Challenges to the Concept of Stock Market Efficiency, Federal Reserve Bank of Kansas City, Economic Review 90, 16–33.
Shiller, R. J., 1981a, Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends? American Economic Review 71, 421–436.
Shiller, R. J., 1981b, The Uses of Volatility Measures in Assessing Market Effi-ciency, Journal of Finance 36, 291–311.
Singleton, K., 1980, Expectations Models of the Term Structure and Implied Variance Bounds, Journal of Political Economy 88, 1159–1176.
Uselton, G. C., J. W. Kolari, and D. R. Fraser, 1986, Long-Term Trends in the Riskiness of Electric Utility Shares, Journal of Business Finance & Accounting 13, 453–459.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 1989 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Uselton, G.C., Fraser, D.R. (1989). Rational Expectations and Perfect Foresight Prices. In: Guimarães, R.M.C., Kingsman, B.G., Taylor, S.J. (eds) A Reappraisal of the Efficiency of Financial Markets. NATO ASI Series, vol 54. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-74741-0_28
Download citation
DOI: https://doi.org/10.1007/978-3-642-74741-0_28
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-74743-4
Online ISBN: 978-3-642-74741-0
eBook Packages: Springer Book Archive