Discussion paper

DP5614 Simulating Stock Returns Under Switching Regimes - A New Test of Market Efficiency

A model of profits switches between four regimes with fixed probabilities; the rationally expected profits stream implies the stock market value. This efficient market model is not rejected by UK post-war time-series behaviour of either profits or the FTSE index.

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Citation

Minford, P, D Peel and D Meenagh (2006), ‘DP5614 Simulating Stock Returns Under Switching Regimes - A New Test of Market Efficiency‘, CEPR Discussion Paper No. 5614. CEPR Press, Paris & London. https://cepr.org/publications/dp5614

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