Econometrica: May 1981, Volume 49, Issue 3

The Present-Value Relation: Tests Based on Implied Variance Bounds

https://doi.org/0012-9682(198105)49:3<555:TPRTBO>2.0.CO;2-3
p. 555-574

Richard D. Porter, Stephen F. LeRoy

This paper investigates the implications for asset price dispersion of conventional security valuation models. Successively sharper variance bounds on asset prices are derived. Large-sample tests of the bounds are determined and applied to aggregated and disaggregated price and earnings data in U.S. corporations.
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