Excess volatility and efficiency in French and German stock markets

Keith Cuthbertson, Stuart Hyde

Research output: Contribution to journalArticlepeer-review


In this paper, we analyse whether the French and German stock markets can be classified to be efficient or whether they exhibit excess volatility. We assess efficiency in each market by employing the VAR methodology of Campbell and Shiller (Campbell, J.Y., Shiller, R.J., 1988b. The dividend-price ratio and expectations of future dividends and discount factors. Rev. Financ. Stud. 1, 195-228) and adopting two alternative assumptions regarding equilibrium expected returns. The first model assumes that equilibrium expected excess returns are constant, while the second model assumes that equilibrium returns depend upon a time varying risk premium which varies with the conditional expectation of the return variance (i.e. the CAPM). We find that the model which assumes constant excess returns is clearly rejected for both France and Germany. However, the volatility (CAPM) model provides some evidence for efficiency. © 2002 Elsevier Science B.V. All rights reserved.
Original languageEnglish
Pages (from-to)399-418
Number of pages19
JournalEconomic Modelling
Issue number3
Publication statusPublished - 2002


  • Efficient markets
  • Equilibrium returns
  • Excess volatility


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