Drift in Transaction-Level Asset Price Models - testing the equity premium

Title: Drift in Transaction-Level Asset Price Models - testing the equity premium

Speaker: Philippe Soulier (Paris Nanterre University)

Time: 1:30pm-2:30pm, March 15 (Wednesday)

Room: LPR 286

Abstract: One often reads such statements as "Stocks are probably still the best long-term investment that exists.''  What does this mean, what are the implicit assumptions underlying such a statement, and and how can it be rigorously statistically tested?  Under a regression model with i.i.d. errors occurring at fixed deterministic time points, the classical t-test can be applied. But these assumptions are not at all realistic and in particular transactions occur at random time points and inter-trade duration can play an important role in the asymptotic of test statistics. We will show several simple realistic models for which the t-test is inconsistent and develop a statistical methodology which is robust under most of these models.