The Present Value Model of Stock Prices: Regression Tests and Monte Carlo Results

Publisher Website
Google Scholar
Abstract
The variance bounds tests of the present value model of stock prices are re-examined in this paper. A direct test of the model based on ordinary least squares estimation of a simple regression equation is proposed as an alternative and it is shown that this regression approach has several advantages over the variance bounds tests. This test is easily adapted to the important case in which the percentage changes in real dividends and real stock prices are stationary processes. The tests are applied to quarterly data for the Standard & Poor's Index of 500 Common Stocks and the results are much more conclusive than those obtained by previous tests.

This publication has 0 references indexed in Scilit: