The Interval of Observation

@article{citeulike:2567999, abstract = {We revisit Kendall's (1953) conclusion that "the interval of observation may be very important" for stock market return predictability tests. Researchers to date mostly ignore this conclusion and routinely regress monthly observations on monthly observations. This is surprising because information aggregation should not take too long in near-efficient markets. Therefore the current practice of predicting stock returns using monthly observations may overlook short-term predictability. We show how conclusions regarding return predictability vary drastically when intervals of observation vary. If Kendall's famous "Demon of Chance" had handed him slightly different intervals of observation, Kendall might have concluded that stock returns were predictable.}, author = {Jacobsen, B. E. N. and Marshall, Ben R. and Visaltanachoti, Nuttawat }, citeulike-article-id = {2567999}, journal = {Social Science Research Network Working Paper Series}, keywords = {data, economics, finance, market, observation, returns, sampling, time}, month = {November}, posted-at = {2008-03-20 20:15:24}, priority = {2}, title = {The Interval of Observation}, url = {http://ssrn.com/abstract=965336}, year = {2007} }

TY - JOUR ID - citeulike:2567999 L3 - citeulike-article-id:2567999 TI - The Interval of Observation JF - Social Science Research Network Working Paper Series N2 - We revisit Kendall's (1953) conclusion that "the interval of observation may be very important" for stock market return predictability tests. Researchers to date mostly ignore this conclusion and routinely regress monthly observations on monthly observations. This is surprising because information aggregation should not take too long in near-efficient markets. Therefore the current practice of predicting stock returns using monthly observations may overlook short-term predictability. We show how conclusions regarding return predictability vary drastically when intervals of observation vary. If Kendall's famous "Demon of Chance" had handed him slightly different intervals of observation, Kendall might have concluded that stock returns were predictable. KW - data KW - economics KW - finance KW - market KW - observation KW - returns KW - sampling KW - time AU - Jacobsen, BEN AU - Marshall, Ben AU - Visaltanachoti, Nuttawat PY - 2007/November// UR - http://ssrn.com/abstract=965336 ER -