Volume Title: Expectations and the Structure of Share Prices. Volume Author/Editor: John G. Cragg and Burton G. Malkiel

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1 This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Expectations and the Structure of Share Prices Volume Author/Editor: John G. Cragg and Burton G. Malkiel Volume Publisher: University of Chicago Press Volume ISBN: Volume URL: Publication Date: 1982 Chapter Title: References, Index Chapter Author: John G. Cragg, Burton G. Malkiel Chapter URL: Chapter pages in book: (p )

2 References Anderson, T. W., and Rubin, Herman Statistical inference in factor analysis. In Neyman, J., ed., Proceedings of the third Berkeley symposium on mathematical statistics and probability, vol. 5, pp Berkeley: University of California Press. Blume, M., and Friend, I The asset structure of individual portfolios and some implications for utility functions. Journal of Finance 30: Cragg, J. G Estimation using regression coefficients as explanatory variables. UBC Econ. Discussion Paper Cragg, John G., and Malkiel, Burton G The consensus and accuracy of some predictions of the growth of corporate earnings. Journal of Finance 23: Fama, Eugene F Multiperiod consumption and investment decisions. American Economic Review 60: Risk, return, and equilibrium. Journal of Political Economy 79: Friedman, Benjamin Survey evidence on the "rationality" of interest rate expectations. Journal of Monetary Economics 6: Friend, Irwin; Westerfield, Randolph; and Granito, Michael New evidence on the capital asset pricing model. Journal of Finance 33: Gordon, Myron The investment, financing, and valuation of the corporation. Home wood, Illinois: Irwin. Graham, B.; Dodd, D. L.; Cottle, Sidney; and Tatham, Charles Security analysis, 4th ed. New York: McGraw-Hill. Holt, C. C The influence of growth duration on share prices. Journal of Finance 17: Jarrow, Robert Heterogeneous expectations, restrictions on short sales, and equilibrium asset prices. Journal of Finance 35:

3 168 References Keynes, John May nard The general theory of employment, interest, and money. New York: Harcourt. King, Benjamin F Market and industry factors in stock price behavior. Journal of Business 39, no. 1, pt. 2: Levy, Haim Equilibrium in an imperfect market: A constraint on the number of securities in the portfolio. American Economic Review 68: Lintner, John The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Review af Economics and Statistics 47: Lintner, John, and Glauber, Robert Higgledy piggledy growth in America. In James Lorie and Richard Brealey, eds., Modern developments investment management. New York: Praeger. Little, I. M. D Higgledy piggledy growth. Oxford Institute of Statistics Bulletin 24: Malkiel, Burton G Equity yields, growth, and the structure of share prices. American Economic Review 53: Malkiel, Burton G., and Cragg, John G Expectations and the structure of share prices. American Economic Review 60: Markowitz, Harry Portfolio selection: Efficient diversification of investments. New York: John Wiley & Sons. Mayers, David Nonmarketable assets and capital market equilibrium under uncertainty. In Michael C. Jensen, ed., Studies in the theory of capital markets, pp New York: Praeger. Merton, Robert C Optimum consumption and portfolio risks in a continuous-time model. Journal of Economic Theory 3: Miller, Edward M Risk, uncertainty, and divergence of opinion. Journal of Finance 32: Miller, Merton H., and Modigliani, Franco Dividend policy, growth, and the valuation of shares. Journal of Business 34: Mincer, Jacob, ed Economic forecasts and expectations; Analysis of forecasting behavior and performance. New York: National Bureau of Economic Research. Mossin, Jan Equilibrium in a capital asset market. Econometrica 34: Muth, John F Rational expectations and the theory of price movements. Econometrica 29: Myers, Stewart C A time-state-preference model of security valuation. Journal of Financial and Quantitative Analysis 3: Nerlove, Marc Factors affecting differences among rates of return on investments in individual common stocks. Review of Economics and Statistics 50: Ohlson, James A., and Garman, Mark B A dynamic equilibrium for the Ross arbitrage model. Journal of Finance 35:

4 169 References Pearce, Douglas K Comparing survey and national measures of expected inflation: Forecast performance and interest rate effects. University of Houston, Mimeograph. Pesando, James E A note on the rationality of the Livingston price expectations. Journal of Political Economy 83: Roll, Richard A critique of the asset pricing theory's tests; pt. 1, On past and potential testability of the theory. Journal of Financial Economics 4: Roll, Richard, and Ross, Stephen A An empirical investigation of the arbitrage pricing theory. Journal of Finance 35: Rosenberg, Barr, and Guy, James Prediction of beta from investment fundamentals. Financial Analysts Journal, May/June, pp ; July/August, pp Ross, Stephen A The arbitrage theory of capital asset pricing. Journal of Economic Theory 13: Risk, return, and arbitrage. In Irwin Friend and James L. Bicksler, eds. Risk and return in finance, vol. 1, pp Cambridge, Massachusetts: Ballinger. Sharpe, William F Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance 19: Siegel, Sydney Nonparametric statistics for the behavioral sciences. New York: McGraw-Hill. Stapleton, R. C, and Subrahmanyam, M. G A multiperiod equilibrium asset pricing model. Econometrica 46: Theil, Henri Applied economic forecasting. Amsterdam: North- Holland. Tobin, James Liquidity preference as behavior towards risk. Review of Economic Studies 25: White, Halbert A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica 48: Williams, J. B The theory of investment value. Cambridge, Massachusetts: Harvard University Press. Wonnacott, Thomas H., and Wonnacott, Ronald T Introductory statistics for business and economic. New York: John Wiley & Sons. Zarnowitz, Victor An appraisal of short-term economic forecasts. New York: National Bureau of Economic Research. Zellner, A An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias. Journal of the American Statistical Association 57:

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6 Index Accounting conventions, 5-6, 8-9, 76 Accuracy of forecasts, 53-54, Agreement. See Consensus of forecasts Anderson, T. W., 68, 144 Arbitrage pricing theory (APT), 3, 97-98, , 134, 150 Average levels of forecasts, 60 Beta coefficients, 3, , 128, 136, , 152, 156, 164 Bias of forecasts, 88 Bilinear models of return, , 127 Blume, Marshall, 117 Capital-asset pricing theory (CAPM), 2, 4, 53-55, 97-98, 108, 117, , , 136, , 163 Capital gains, 107, , 121, 163 Center for Research in Security Prices (CRSP), 136, 138, 140 Change in valuation, 107 Changes in predictions, agreement over, 61-63, 71 Combination of forecasts, 94 Common factor model of expectations, 66-72, 74, 87, 93, , 133 Common factor model of returns, , 106-7, 115, , 126, , 148 Company risk, 85 Company sample, 6-8, 13 Compustat tape, 8, 13, Consensus of forecasts, 11, See also Diversity of expectations Consumer Price Index, 13, 136, Correlations of forecasts. See Consensus of forecasts Cottle, Sidney, 8, 54 Cragg, John G., Cyclical companies, 8, 65, 83, Discounted dividends theories of valuation, 8, , Diversification of holdings, 98-99, 103,117 Diversification theory of valuation, 3, , 126, 136, 164 Diversity of expectations, 67-68, 70, , 118, 120, 163. See also Consensus of forecasts Dividends, 5, , 121, , 138, , 156, Dodd, D. L., 8, 54 Dow Jones Industrial Average, 136 Earnings growth, 5, 53-54, 76,121-26, 153 Efficient market hypothesis, 13, 165 Error-learning model, 92 Errors in variables, , 130, 141, 143, , Errors of measurement, 129, , 149, Estimation errors. See Errors in variables Expectations formation, 8, Expectations rationality, Expected growth of earnings, 9-10,121-27, Expected return, 8, , 138 Extrapolation of past growth, 81, 85-86

7 172 Index Factor analysis, 66, 87, 99, 102, 127, 132, See also Common factor model Fama, Eugene F., 100, 105, 120 Forecast accuracy, 53-54, Friedman, Benjamin, 53, 88, 96 Friend, I., 3, 117 Garman, Mark B., 98 General equilibrium theory, 119 Glauber, Robert, 86 Gordon, Myron, 54 Graham, B., 8, 54 Granito, Michael, 4 Gross National Product, 81, 136 Growth of earnings. See Earnings growth Growth stocks, Guy, James, 156 Heteroscedasticity, 87, 92, 138, 147 Historic growth rates, 10-11, 72-76, 154 Holding costs, 104-5, 113 Holt, C. C.,54 Homogeneous expectations. See Diversity of expectations Industrial classification, 11-12, 63-65, 71-72, 81-85, 156, Inequality coefficient, Inflation, 67,100,136-37,140-42,145,148, 152 Institute for Quantitative Research in Finance, 5 Institutional investors, 6-7, Instrumental variables, 149 Interest rates, , , 145, 147 Jarrow, Robert, 104, 120 Kendall's coefficient of concordance (W), 58,83 Keynes, (Lord) John Maynard, 122, 161 King, Benjamin F., 146 Levy, Haim, 120 Linear models of return, , 127 Lintner, John, 2, 54, 86, 97 Little, I. M. D., 86 Malkiel, Burton G., 54, 125 Market index, 129, Market return, , 129, 139 Market risk, 147 Markowitz, Harry, 2 Mayers, David, 120 Measurement error. See Errors of measurement Merton, Robert C, 120 Miller, Edward M., 104 Miller, Merton H., 153 Mincer, Jacob, 53 Missing observations, 5-7, 59, 61, 64, 68, 79, 81-82, 86, , 154 Modigliani, Franco, 153 Mossin, Jan, 2, 54, 97 Multicollinearity, , 131, 142, 147, Muth, JohnF., 87 Myers, Stewart C, 99 Naive forecasts, 81, National income, 67,136-37,140,148,152 Negative holdings of securities, 103-4, , 118, 120 Nerlove, Marc, 54 New York Society of Financial Analysts, 5 Nonlinear models, 107, Normalized earnings, 8-9, 86, 152, 155 Ohlson, James A., 98 Omitted variables, 162 Overlapping portfolios, 103, 105, 110 Past growth of earnings, 10-11, 72-76, 154 Payout ratio. See Dividends Pearce, Douglas K., 53 Pesando, James E., 53 Portfolio selection, , 120, Predicted growth of earnings, 138 Price-earnings ratios, 8, 75-76, 86, 96, Prudent man rules, 113 Quality ratings, 85 Random coefficient models, 92 Rate of return valuation models, 106, 125, Rational expectations, Rational expectations hypothesis, 55,86,92 Realized growth rates (future), 76 Regression coefficients used as variables, , 128, Regressions, seemingly unrelated, 150,158 Revision of forecasts, Risk and realized return, Risk aversion, 100

8 173 Index Risk measurement, , , , , 143, , 161 Roll, Richard, 100, , 128, 146 Rosenberg, Barr, 156 Ross, Stephen A., 3, 97, , 115, , 146 Rubin, Herman, 68, 144 Security analysts, 5-9, 54, 74, 85, 97, 135, 154, 163 Security valuation, 7, 53-54, 67, , 124, 135 Serial correlation of forecasts, 62, 90 Sharpe, William F., 2, 54, Short-selling. See Negative holdings of securities Siegel, Sydney, 58 Specific risk, 98, 103, 113, 129, 141 Speculative bubbles, 122 Stability of valuation models over time, , 156 Standard and Poor, 8, 13, Standard and Poor's 500 Stock Index, 136 Stapleton, R. C, 98 Structural change, 137 Subrahmanyam, M. G., 98 Systematic risk, 4, 135, , 143, 147, 156, 163 Tatham, Charles, 8, 54 Taxation, , Theil, Henri, 79, 88, 92 Tobacco companies, Tobin, James, 2 Transactions costs, 104, 113 Treasury Bill rate, 136, Underestimation of change, 81, Utility functions of investors, 105 Utility maximization, , 118, 122 Valuation of securities. See Security valuation Variance of predictions, 4,11,133-34,140, 143, , , 157, 165 Variance of residuals, as risk measure, , 134, 140 Variances of earnings, 85 Westerfield, Randolph, 4 White, Halbert, 87, 138 Williams, J. B., 54 Wonnacott, Ronald T., 69 Wonnacott, Thomas H., 69 Yield-tilted index funds, Zarnowitz, Victor, 53 Zellner, Arnold, 150

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10 those doing further research. Thus, the importance of Cragg and Malkiel's conclusions and the very practical nature of the problem they address should make this volume highly valued by the investment community and academic researchers. JOHN G. CRAGG is professor of economics and head of the Department of Economics at the University of British Columbia. Burton G. Malkiel is dean of the Yale School of Organization and Management and the William S. Beinecke Professor of Management Studies and professor of economics at Yale University. Printed in U.S.A. For information on books of related interest, or for a catalog of new publications, please write: Marketing Department The University of Chicago Press 5801 South Ellis Avenue Chicago, Illinois U.S.A.

11 Other National Bureau of Economic Research volumes A Rational Expectations Approach to Macroeconomics Testing Policy Ineffectiveness and Efficient Markets Models Frederic S. Mishkin Mishkin pursues a rational expectations approach to the estimation of models that emphasize the effects of unanticipated movements in variables. He develops and discusses a unified theory of econometric treatment of these models, shows how to estimate them with an annotated computer program, and provides empirical studies that provide evidence on such important macroeconomic issues as the relation of monetary policy to both long- and short-term interest rates. Forthcoming Risk and Capital Adequacy in Commercial Banks Edited by Sherman J. Maisel This collection offers a new approach to the problems of monitoring and controlling the probability and frequency of bank failures in the United States. It explains how risks in financial institutions arise, how they can be measured, and how they can be kept at a minimum. The authors argue that bank regulation and examination systems can provide more objective evaluations by using econometrics' quantitative tools for analyzing risk and assessing insurance premiums pages Cloth ISBN: Rational Expectations and Economic Policy Edited by Stanley Fischer The papers in this volume fall roughly into two categories: those papers concerned with empirical or theoretical developments relevant to testing the theory of rational expectations and its implications for monetary policy and those more discursive papers dealing with government's "track record" as a controller of monetary aggregates. "An important contribution... representative of the broadest spectrum of economic thinking with respect to weaknesses in current approaches to macroeconomic theory and policy. "-Journal of Money, Credit, and Banking pages Cloth ISBN: Paper ISBN: The University of Chicago Press ISBN D-