NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Market Efficiency Tests

Tim Bollerslev, Robert J. Hodrick

NBER Working Paper No. 4108
Issued in June 1992
NBER Program(s):   AP

This paper provides a selective survey of the voluminous literature on tests for market efficiency. The ideas discussed include standard autocorrelation tests, multi-period regression tests and volatility tests. The formulation and estimation of models for time-varying volatility are also considered. Dependence in second-order moments plays an important role in implementing and understanding tests for market efficiency. All of the reported test statistics and model estimates are calculated with monthly data on value-weighted NYSE stock prices and dividends. The distributions of the test statistics under various alternatives, including fads and bubbles, are illustrated through the use of Monte Carlo methods. In addition to the standard constant discount rate present value model, we postulate and simulate a new fundamental price relationship that accounts for the time-varying uncertainty in the monthly dividend growth rates. Allowing the discount rate to be a function of the time-varying uncertainty in the dividend process results in a simulated fundamental price series that is broadly consistent with most of the sample statistics of the actual data.

download in pdf format
   (2269 K)

email paper

This paper is available as PDF (2269 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4108

Published: M.H. Pesaran and M.R. Wickens, eds., Handbook of Applied Econometrics, Vol. 1, Macroeconomics, Basil Blackwell, 1996, pp. 415-458.

Users who downloaded this paper also downloaded these:
Schwert w9277 Anomalies and Market Efficiency
Shiller w0565 The Use of Volatility Measures in Assessing Market Efficiency
Daniel and Titman w7489 Market Efficiency in an Irrational World
Gorton, Huang, and Kang w14944 The Limitations of Stock Market Efficiency: Price Informativeness and CEO Turnover
Lehmann w2533 Fads, Martingales, and Market Efficiency
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us