A rolling MTAR model to test for efficient stock pricing and asymmetric adjustment

The paper is concerned with the question whether the pricing of U.S. stocks has been efficient according to the present value model. We extended the MTAR-model used in the context of market efficiency using a rolling window estimation strategy. This rolling MTAR-analysis revealed that the assumed underlying time series process in the logarithm of earnings to stock-price ratio is highly unstable over time. This evidence casts doubt on the usefulness of conclusions regarding long time periods of about 130 years. Due to the rolling MTAR-approach it was possible to reveal decades of inefficient stock pricing as well as decades of asymmetric time series behavior.