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39
Sticky Prices in the United States
 Journal of Political Economy
, 1982
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Cited by 417 (5 self)
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An Econometric Model of Serial Correlation and Illiquidity in Hedge Fund Returns
 Journal of Financial Economics
, 2004
"... The returns to hedge funds and other alternative investments are often highly serially correlated, in sharp contrast to the returns of more traditional investment vehicles such as longonly equity portfolios and mutual funds. In this paper, we explore several sources of such serial correlation and s ..."
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Cited by 223 (12 self)
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The returns to hedge funds and other alternative investments are often highly serially correlated, in sharp contrast to the returns of more traditional investment vehicles such as longonly equity portfolios and mutual funds. In this paper, we explore several sources of such serial correlation and show that the most likely explanation is illiquidity exposure, i.e., investments in securities that are not actively traded and for which market prices are not always readily available. For portfolios of illiquid securities, reported returns will tend to be smoother than true economic returns, which will understate volatility and increase riskadjusted performance measures such as the Sharpe ratio. We propose an econometric model of illiquidity exposure and develop estimators for the smoothing profile as well as a smoothingadjusted Sharpe ratio. For a sample of 908 hedge funds drawn from the TASS database, we show that our estimated smoothing coefficients vary considerably across hedgefund style categories and may be a useful proxy for quantifying illiquidity exposure.
Mean reversion in equilibrium asset prices
 American Economic Review
, 1990
"... Recent empirical studies have found that stock returns contain substantial negative serial correlation at long horizons. We examine this finding with a series of Monte Carlo simulations in order to demonstrate that it is consistent with an equilibrium model of asset pricing. When investors display o ..."
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Cited by 102 (3 self)
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Recent empirical studies have found that stock returns contain substantial negative serial correlation at long horizons. We examine this finding with a series of Monte Carlo simulations in order to demonstrate that it is consistent with an equilibrium model of asset pricing. When investors display only a moderate degree of risk aversion, commonly used measures of mean reversion in stock prices calculated from actual returns data nearly always lie within a 60 percent confidence interval of the median of the Monte Carlo distributions. From this evidence, we conclude that the degree of serial correlation in the data could plausibly have been generated by our model.
The Adaptive Markets Hypothesis: Market Efficiency from an Evolutionary Perspective
 THE JOURNAL OF PORTFOLIO MANAGEMENT
, 2004
"... The 30th anniversary of The Journal of Portfolio Management is a milestone in the rich intellectual history of modern finance, firmly establishing the relevance of quantitative models and scientific inquiry in the practice of financial management. One of the most enduring ideas from this intellectu ..."
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Cited by 78 (12 self)
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The 30th anniversary of The Journal of Portfolio Management is a milestone in the rich intellectual history of modern finance, firmly establishing the relevance of quantitative models and scientific inquiry in the practice of financial management. One of the most enduring ideas from this intellectual history is the Efficient Markets Hypothesis (EMH), a deceptively simple notion that has become a lightning rod for its disciples and the proponents of behavioral economics and finance. In its purest form, the EMH obviates active portfolio management, calling into question the very motivation for portfolio research. It is only fitting that we revisit this groundbreaking idea after three very successful decades of this Journal. In this article, I review the current state of the controversy surrounding the EMH and propose a new perspective that reconciles the two opposing schools of thought. The proposed reconciliation, which I call the Adaptive Markets Hypothesis (AMH), is based on an evolutionary approach to economic interactions, as well as some recent research in the cognitive neurosciences that has been transforming and revitalizing the intersection of psychology and economics. Although some of these ideas have not yet been fully articulated within a rigorous quantitative framework, long time students of the EMH and seasoned practitioners will no doubt recognize immediately the possibilities generated by this new perspective. Only time will tell whether its potential will be fulfilled. I begin with a brief review of the classic version of the EMH, and then summarize the most significant criticisms leveled against it by psychologists and behavioral economists. I argue that the sources of this controversy can
Financial Markets and the Real Economy
, 2006
"... I survey work on the intersection between macroeconomics and finance. The challenge is to find the right measure of “bad times,” rises in the marginal value of wealth, so that we can understand high average returns or low prices as compensation for assets’ tendency to pay off poorly in “bad times.” ..."
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Cited by 43 (4 self)
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I survey work on the intersection between macroeconomics and finance. The challenge is to find the right measure of “bad times,” rises in the marginal value of wealth, so that we can understand high average returns or low prices as compensation for assets’ tendency to pay off poorly in “bad times.” I survey the literature, covering the timeseries and crosssectional facts, the equity premium, consumptionbased models, general equilibrium models, and labor income/idiosyncratic risk approaches.
Dangers of DataDriven Inference: The Case of Calendar Effects in Stock Returns
 Journal of Finance
, 1998
"... Economics is primarily a nonexperimental science. Typically, we cannot generate new data sets on which to test hypotheses independently of the data that may have led to a particular theory. The common practice of using the same data set to formulate and test hypotheses introduces datasnooping bias ..."
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Cited by 37 (3 self)
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Economics is primarily a nonexperimental science. Typically, we cannot generate new data sets on which to test hypotheses independently of the data that may have led to a particular theory. The common practice of using the same data set to formulate and test hypotheses introduces datasnooping biases that, if not accounted for, invalidate the assumptions underlying classical statistical inference. A striking example of a datadriven discovery is the presence of calendar effects in stock returns. There appears to be very substantial evidence of systematic abnormal stock returns related to the day of the week, the week of the month, the month of the year, the turn of the month, holidays, and so forth. However, this evidence has largely been considered without accounting for the intensive search preceding it. In this paper we use 100 years of daily data and a new bootstrap procedure that allows us to explicitly measure the distortions in statistical inference induced by datasnooping. We find that although nominal Pvalues of individual calendar rules are extremely significant, once evaluated in the context of the full universe from which such rules were drawn, calendar effects no longer remain significant.
Stationary Markov Equilibria
 Econometrica
, 1994
"... We establish conditions which (in various settings) guarantee the existence of equilibria described by ergodic Markov processes with a Borel state space S. Let 9(S) denote the probability measures on S, and let s G(s) c 4?(S) be a (possibly emptyvalued) correspondence with closed graph characteri ..."
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Cited by 24 (0 self)
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We establish conditions which (in various settings) guarantee the existence of equilibria described by ergodic Markov processes with a Borel state space S. Let 9(S) denote the probability measures on S, and let s G(s) c 4?(S) be a (possibly emptyvalued) correspondence with closed graph characterizing intertemporal consistency, as prescribed by some particular model. A nonempty measurable set J c S is selfjustified if G(s) n 9?(J) is not empty for all s E J. A timehomogeneous Markov equilibrium (THME) for G is a selfjustified set J and a measurable selection TI: J9 _(J) from the restriction of G to J. The paper gives sufficient conditions for existence of compact selfjustified sets, and applies the theorem: If G is convexvalued and has a compact selfjustified set, then G has an THME with an ergodic measure. The applications are (i) stochastic overlapping generations equilibria, (ii) an extension of the Lucas (1978) asset market equilibrium mnodel to the case of heterogeneous agents, and (iii) equilibria for discounted stochastic games with uncountable state spaces.
models
 in China between 1949 and
, 1998
"... Short sections of text, not to exceed two paragraphs, may be quoted without ..."
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Cited by 17 (0 self)
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Short sections of text, not to exceed two paragraphs, may be quoted without