Revisiting Shiller's excess volatility hypothesis

No 2015-33, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

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.

Keywords: present value; excess volatility (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:621

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