Temporary components of stock returns: What do the data tell us?

Research output: Contribution to journalArticle

29 Citations (Scopus)

Abstract

Within the past few years several articles have suggested that returns on large equity portfolios may contain a significant predictable component at horizons 3 to 6 years. Subsequently, the tests used in these analyses have been criticized (appropriately) for having widely misunderstood size and power, rendering the conclusions inappropriate. This criticism however has not focused on the data, it addressed the properties of the tests. In this article we adopt a subjectivist analysis - treating the data as fixed - to ascertain whether the data have anything to say about the permanent/temporary decomposition. The data speak clearly and they tell us that for all intents and purposes, stock prices follow a random walk.

Original languageEnglish (US)
Pages (from-to)1033-1059
Number of pages27
JournalReview of Financial Studies
Volume9
Issue number4
StatePublished - Dec 1996

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Stock returns
Random walk
Stock prices
Decomposition
Criticism
Equity

ASJC Scopus subject areas

  • Accounting
  • Economics and Econometrics
  • Finance

Cite this

Temporary components of stock returns : What do the data tell us? / Lamoureux, Christopher G; Zhou, Guofu.

In: Review of Financial Studies, Vol. 9, No. 4, 12.1996, p. 1033-1059.

Research output: Contribution to journalArticle

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