English, Article, Journal or magazine article edition: Excessive Dispersion of US Stock Prices: A Regression Test of Cross-Sectional Volatility Ian Tonks; Andy Snell; George Bulkley

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Excessive Dispersion of US Stock Prices: A Regression Test of Cross-Sectional Volatility
Author
  • Ian Tonks
  • Andy Snell
  • George Bulkley
Physical Description
  • preprint
Notes
  • In this paper we apply a regression test of the volatility of asset prices to a cross-section data set of US stock prices each year between 1932-71. We show that the rejection of REEM in the time series domain carries over to a data set consisting of observations on a cross-section of individual share prices within a particular year, and we refer to this phenomena as excess dispersion of stock prices. In nearly all of the years over the period 1932-71 we find that stock prices are excessively dispersed. This finding is consistent with the existence of a firm specific bubble which drive a wedge between the values of pt*and pt. We go on to examine the relationship between the mis- pricing and market fundamentals which we take to be related to past dividends. Assuming that dividend yields proxy for growth expectations we find that investors are unduly optimistic about high growth stocks and too pessimistic about low expected growth stocks. Our results suggest that there must be a microeconomic source to this mis-pricing.
  • RePEc:fmg:fmgdps:dp246
Language
  • English
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