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The price is (almost) right

Cohen, Randolph B., Polk, Christopher and Vuolteenaho, Tuomo (2009) The price is (almost) right. Journal of Finance, 64 (6). pp. 2739-2782. ISSN 1540-6261

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Abstract

Most previous research tests market efficiency using average abnormal trading profits on dynamic trading strategies, and typically rejects the joint hypothesis of market efficiency and an asset pricing model. In contrast, we adopt the perspective of a buy-and-hold investor and examine stock price levels. For such an investor, the price level is more relevant than the short-horizon expected return, and betas of cash flow fundamentals are more important than high-frequency stock return betas. Our cross-sectional tests suggest that there exist specifications in which differences in relative price levels of individual stocks can be largely explained by their fundamental betas.

Item Type: Article
Official URL: http://www.afajof.org/
Additional Information: © 2009 American Finance Association
Library of Congress subject classification: H Social Sciences > HG Finance
Sets: Departments > Finance
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: UT ISI:000272193500010
Date Deposited: 21 Jan 2010 14:18
URL: http://eprints.lse.ac.uk/26724/

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