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Temporary Components of Stock Prices: A Skeptic's View
Journal of Business & Economic Statistics
Vol. 11, No. 2 (Apr., 1993), pp. 199-207
Stable URL: http://www.jstor.org/stable/1391371
Page Count: 9
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Recent empirical work has uncovered U-shaped patterns of large magnitude in the serial-correlation estimates of multiyear stock returns. The current literature in finance has taken this evidence to mean that there exists a temporary component of stock prices. This article provides an alternative explanation regarding these findings. Specifically, we show that the patterns in serial-correlation estimates and their magnitude observed in previous studies should be expected under the null hypothesis of serial independence.
Journal of Business & Economic Statistics © 1993 American Statistical Association