http://dklevine.com/archive/refs41401.pdf

THE EQUITY PREMIUM A Puzzle

A vast amount of literature uses cross-country regressions to find empirical links between policy indicators and long-run average growth rates. The authors study whether the conclusions from existing studies are robust or fragile when small changes in the list of independent variables occur. They find that although"policy"appears to be importantly related to growth, there is no strong independent relationship between growth and almost every existing policy indicator. They also find that very few macroeconomic variables are robustly correlated with cross-country growth rates. They clarify the conditions under which one finds convergence of per capita output levels and confirm the positive correlation between the share of investment in GDP and long-run growth. They conclude that all findings using the share of exports in GDP could be obtained almost identically using the total trade or import share and also that few commonly used fiscal indicators are robustly correlated with growth. Finally, the authors highlight the importance of considering alternative specifications in cross-country growth regressions.

A sensitivity analysis of cross-country growth regressions

SEQUELS ARE RARELY AS good as the originals, so I approach this review of the market efficiency literature with trepidation. The task is thornier than it was 20 years ago, when work on efficiency was rather new. The literature is now so large that a full review is impossible, and is not attempted here. Instead, I discuss the work that I find most interesting, and I offer my views on what we have learned from the research on market efficiency.

https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1540-6261.1991.tb04636.x

Efficient Capital Markets: II

A vast literature uses cross-country regressions to search for empirical linkages between long-run growth rates and a variety of economic policy, political, and institutional indicators. This paper examines whether the conclusions from existing studies are robust or fragile to small changes in the conditioning information set. The authors find that almost all results are fragile. They do, however, identify a positive, robust correlation between growth and the share of investment in GDP and between the investment share and the ratio of international trade to GDP. The authors clarify the conditions under which there is evidence of per capita output convergence.

THIS PAPER IS A THEORETICAL examination of the stochastic behavior of equilibrium asset prices in a one-good, pure exchange economy with identical consumers. The single good in this economy is (costlessly) produced in a number of different productive units; an asset is a claim to all or part of the output of one of these units. Productivity in each unit fluctuates stochastically through time, so that equilibrium asset prices will fluctuate as well. Our objective will be to understand the relationship between these exogenously determined productivity changes and market determined movements in asset prices. Most of our attention will be focused on the derivation and application of a functional equation in the vector of equilibrium asset prices, which is solved for price as a function of the physical state of the economy. This equation is a generalization of the Martingale property of stochastic price sequences, which serves in practice as the defining characteristic of market "efficiency," as that term is used by Fama [7] and others. The model thus serves as a simple context for examining the conditions under which a price series' failure to possess the Martingale property can be viewed as evidence of non-competitive or "irrational" behavior. The analysis is conducted under the assumption that, in Fama's terms, prices "fully reflect all available information," an hypothesis which Muth [13] had earlier termed "rationality of expectations." As Muth made clear, this hypothesis (like utility maximization) is not "behavioral": it does not describe the way agents think about their environment, how they learn, process information, and so forth. It is rather a property likely to be (approximately) possessed by the outcome of this unspecified process of learning and adapting. One would feel more comfortable, then, with rational expectations equilibria if these equilibria were accompanied by some form of "stability theory" which illuminated the forces which move an economy toward equilibrium. The present paper also offers a convenient context for discussing this issue. The conclusions of this paper with respect to the Martingale property precisely replicate those reached earlier by LeRoy (in [10] and [11]), and not surprisingly, since the economic reasoning in [10] and the present paper is the same. The

/pdf/asset-prices-in-an-exchange-economy-2rw36dol4q.pdf

Asset prices in an exchange economy

https://www.jstor.org/stable/pdfplus/1911512.pdf

The present-value relation: tests based on implied variance bounds'

Atheoretical macroeconometrics: A critique

Efficient Capital Markets and Martingales

https://www.socsci.uci.edu/~jkbrueck/course%20readings/leroy-sonstelie.pdf

Paradise Lost and Regained: Transportation Innovation, Income, and Residential Location

gale property has received theoretical support from recent work by Samuelson [10].2 However, Samuelson's result depends on the assumption that investors require an exogenously given expected rate of return. It is natural to inquire whether the martingale property can be derived when the assumption of a given expected rate of return is relaxed. That question will be discussed in this paper. It is no longer assumed that the expected rate of return may be taken as given. thien it becomes necessary to consider how the expected rate of return is determined, and this involves analyzing the relation between the riskiness of stock and the risk-aversion of investors. We are led to consider models of portfolio selection of the type developed by Tobin [13], [14] and Markowitz [6], and the associated models of capital market equilibrium of Sharpe [12] and Lintner [5], since these deal explicitly with this question. However, it is apparent that models of the Sharpe-Lintner type, though they do relate the expected rate of return to the optimizing behavior of risk-averse investors, can cast no light on the martingale question. This is so because these models assume a one-period framework, with the expected value and variance of the next-period price being taken as given, and therefore cannot generate an intertemporal probability distribution. It is necessary somehow to dynamize the Sharpe-Lintner model; i.e., to modify the model so that it generates an intertemporal distribution of asset prices. In order to do this it is assumed that investors bid for a financial asset ("stock") which constitutes a claim to a random intertemporal stream of earnings with known probability distribution, rather than for a security which matures in the next period as in the Sharpe-Lintner one-period portfolio models. It is assumed that investors have a choice between risky stock and a riskless asset earning a constant exogenous rate of return, as in the one-period portfolio models. In Section 2 such a model is developed, though only for a restricted class of

Stephen F. LeRoy

Papers

The present-value relation: tests based on implied variance bounds'

Atheoretical macroeconometrics: A critique

Efficient Capital Markets and Martingales

Paradise Lost and Regained: Transportation Innovation, Income, and Residential Location

Risk aversion and the martingale property of stock prices