The present value model of U.S. stock prices redux: a new testing strategy and some evidence

摘要

Relying on a present value model with time-varying expected returns, and incorporating a quite general class of processes to model bubble-like stock price deviations from the long-run equilibrium, we provide empirical evidence on the U.S. log dividend-price ratio over the 1871:1-2001:9 period, as well as for several sub-periods. The application of a momentum threshold autoregressive technique designed to detect asymmetric short-run adjustments to the long-run equilibrium provides empirical support in favor of the long-run validity of the present value model. Nevertheless, in the short-run, U.S. stock prices exhibit large and persistent bubble-like departures from present value prices followed by a crash.