Excess Volatility in European Equity Style Indices - New Evidence

Arbeitspapier

Are financial markets efficient? One proposition that seems to contradict this is Shiller's finding of excess volatility in asset prices and its resulting rejection of the discounted cash flow model. This paper replicates Shiller's approach for a different data set and extends his analysis by testing for a long-run relationship by means of a cointegration analysis. Contrary to previous studies, monthly data for an integrated European stock market is being used, with special attention to equity style investment strategies. On the basis of this analysis' results, Shiller's findings seem questionable. While a long-run relationship between prices and dividends can be observed for all equity styles, a certain degree, but to a much smaller extent than in Shiller's approach, of excess volatility cannot be rejected. But it seems that a further relaxation of Shiller's assumptions would completely eliminate the finding of an overly strong reaction of prices to changes in dividends. Two interesting side results are, that all three investment styles seem to have equal performance when adjusting for risk, which by itself is an indication for efficiency and that market participants seem to use current dividend payments from one company as an indication for future dividend payments by other firms. Overall the results of this paper lead to the conclusion that efficiency cannot be rejected for an integrated European equity market.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: IWH Discussion Papers ; No. 16/2006

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Information and Market Efficiency; Event Studies; Insider Trading
• Thema: Aktienmarkteffizienz ; Discouned Cashflow ; Excess Volatility ; Variance Bound Tests ; Kointegration ; Equity Market Efficiency ; Discounted Cashflow ; Excess Volatility ; Variance Bound Test ; Cointegration Tests

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Berneburg, Marian
• Ereignis: Veröffentlichung
• (wer): Leibniz-Institut für Wirtschaftsforschung Halle (IWH)
• (wo): Halle (Saale)
• (wann): 2006

Weitere Informationen

• Handle: http://hdl.handle.net/10419/23761
• URN: urn:nbn:de:gbv:3:2-5520
• Letzte Aktualisierung: 10.03.2025, 11:45 MEZ