Date of Award

Spring 2020

Project Type


Program or Major


Degree Name

Doctor of Philosophy

First Advisor

Michael D Goldberg

Second Advisor

Nicholas Mangee

Third Advisor

James Wible


Prior research on stock prices has found that most variation in stock prices is attributable to variation in expected returns rather than cash flows. Prices exhibit “excess volatility” and are too persistent to be explained in terms of cash flows. This finding has contributed to the divergence between the so-called “behavioral finance” school of research and advocates of “efficient markets.” I examine whether the relation between fundamentals and prices is stronger in relative stock prices than absolute stock prices. I also explore whether the reasons for the excess volatility and persistence problems may be attributable to structural change.

Chapter 1 reviews the literature on stock prices. The extant research overwhelmingly relies on absolute stock price data; few researchers even consider relative stock prices. Research in psychology, often cited by behavioral researchers as reason to think markets are not efficient, provides reasons to suspect that relative stock prices may more closely reflect fundamentals than absolute prices. In addition, research on disaggregated prices suggests that the relationship betweexn relative prices and fundamentals may be clearer in the data than between fundamentals and absolute prices. In Chapters 2 and 3, I use time-series techniques, adapted from widely accepted approaches in previous literature, to examine this question. Chapter 2 uses short-run tests to examine whether relative prices also exhibit excess volatility. Chapter 3 uses cointegration techniques to examine the persistence problem; but I also examine whether there is less evidence of structural change effects on relative prices than absolute prices. I find evidence consistent with relative prices behaving more “efficiently” than absolute prices.