An Unbiased Reexamination of Stock Market Volatility

Authors

  • N. GREGORY MANKIW,

  • DAVID ROMER,

  • MATTHEW D. SHAPIRO

    Search for more papers by this author
    • Mankiw and Romer are from the Masschusetts Institute of Technology, and Shapiro is from Yale University. The authors are grateful to Fischer Black, Olivier Blanchard, Stanley Fischer, James Poterba, and Robert Shiller for helpful comments.


ABSTRACT

Recent work demonstrates serious statistical problems with standard volatility tests. This paper proposes new tests that are unbiased in small samples and that do not require assumptions of stationarity. The new tests continue to find evidence against the model positing rational expectations and a constant required rate of return on equity.

Ancillary