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Permanent and Temporary Components of Stock Prices
Abstract
A slowly mean-reverting component of stock prices tends to induce negative autocorrelation in returns. The autocorrelation is weak for the daily and weekly holding periods common in market efficiency tests but stronger for long-horizon returns. In tests for the 1926-85 period, large negative autocorrelations for return horizons beyond a year suggest that predictable price variation due to mean reversion accounts for large fractions of 3-5-year return variances. Predictable variation is estimated to be about 40 percent of 3-5-year return variances for portfolios of small firms. The percentage falls to around 25 percent for portfolios of large firms.
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Cited by
Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
JEGADEESH, N., & TITMAN, S. (1993) · The Journal of Finance · doi:10.1111/j.1540-6261.1993.tb04702.x · Cited by 11,584
FAMA, E. F. (1991) · The Journal of Finance · doi:10.1111/j.1540-6261.1991.tb04636.x · Cited by 5,350
Self-citationWhy Does Stock Market Volatility Change Over Time?
SCHWERT, G. W. (1989) · The Journal of Finance · doi:10.1111/j.1540-6261.1989.tb02647.x · Cited by 3,427
What explains the stock market’s reaction to federal reserve policy?
BERNANKE, B. S., & KUTTNER, K. N. (2005) · The Journal of Finance · doi:10.1111/j.1540-6261.2005.00760.x · Cited by 2,384
Stock Prices, Earnings, and Expected Dividends
Campbell, J., & Shiller, R. (1988) · Digital Access to Scholarship at Harvard (DASH) (Harvard University) · doi:10.2307/2328190 · Cited by 2,380
Metadata
- Authors
- Fama, E. F., & French, K. R.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1988-04
- Volume
- 96
- Issue
- 2
- Pages
- 246-273
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2038621549
- Cited by
- 3,025
- References
- 0
- FWCI
- 133.82
- Type
- journal article
- Language
- en
- Open access
- closed
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