An Unbiased Reexamination of Stock Market Volatility

Recent work demonstrates serious statistical problems with standard volatility tests. This paper proposes new tests that are unbiased in small samples and that do not require assumptions of stationarity. The new tests continue to find evidence against the model positing rational expectations and a c...

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Bibliographic Details
Published in:The Journal of finance (New York) 1985-07, Vol.40 (3), p.677-687
Main Authors: MANKIW, N. GREGORY, ROMER, DAVID, SHAPIRO, MATTHEW D.
Format: Article
Language:English
Subjects:
Dividends
Economic expectations
Forecasting models
Market prices
Price volatility
Sampling bias
Statistical forecasts
Statistical variance
Stock markets
Stock prices
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Summary:Recent work demonstrates serious statistical problems with standard volatility tests. This paper proposes new tests that are unbiased in small samples and that do not require assumptions of stationarity. The new tests continue to find evidence against the model positing rational expectations and a constant required rate of return on equity.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.1985.tb04990.x