Dundee Discussion Papers in Economics 287: Revisiting Shiller’s excess volatility hypothesis

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Abstract

One of the cornerstone of financial anomalies is that there exists money making opportunities. Shiller’s excess volatility theory is re-investigated from the perspective of a trading strategy where the present value is computed using a series of simple econometric models to forecast the present value. The results show that the excess volatility may not be exploited given the data available until time t. However, when learning is introduced empirically, the simple trading strategy may offer profits, but which are likely to disappear once transaction costs are considered.
Original languageEnglish
PublisherUniversity of Dundee
Number of pages24
Publication statusPublished - Feb 2015

Publication series

NameDundee Discussion Papers in Economics
PublisherUniversity of Dundee
No.287
ISSN (Print)1473-236X

Keywords

  • Present Value
  • Excess Volatility

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