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Stock Market Volatility and Fractional Integration
Author(s) -
Cheung YinWong
Publication year - 1996
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/(sici)1099-1158(199610)1:4<263::aid-ijfe24>3.0.co;2-h
Subject(s) - economics , volatility (finance) , dividend , econometrics , stock (firearms) , financial economics , stock market , implied volatility , volatility swap , stock market bubble , volatility smile , finance , mechanical engineering , paleontology , horse , engineering , biology
A fractional integration framework and a relationship between the variability of innovations in real stock prices and real dividends implied by the present value model are used to examine the issue of stock market volatility raised by Shiller (1981) and LeRoy and Porter (1981). It is found that both stock price and dividend data are neither trend stationary nor difference stationary; they are fractionally integrated. The data also show that low interest rates and investors' myopic behaviour only have a limited role in explaining excessive market volatility. On the other hand, the evidence for excess market volatility seems substanti al even after controlling for sampling uncertainty.