Structural Breaks, Incomplete Information and Stock Prices

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: This paper presents empirical evidence on the existence of structural breaks in the fundamentals process underlying US stock prices. We develop an asset pricing model that represents breaks in the context of a Markov switching process with an expanding set of non-recurring states. Different hypotheses on how investors form expectations about future dividends after a break are proposed and analyzed. A model in which investors do not have full information about the parameters of the dividend process but gradually update their beliefs as new information arrives is shown to induce skewness, kurtosis, volatility clustering and the serial correlation in stock returns after a break.

Keywords: asset pricing; stocks; structural breaks (search for similar items in EconPapers)
Date: 2001-01-01
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Citations: View citations in EconPapers (56)

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Related works:
Journal Article: Structural Breaks, Incomplete Information, and Stock Prices (2001)
Working Paper: Structural Breaks, Incomplete Information and Stock Prices (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucsdec:qt1sn269d7

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