The Journal of Finance

Stock Market Returns and Inflation Forecasts

Published: 06/01/1983   |   DOI: 10.1111/j.1540-6261.1983.tb02495.x

N. BULENT GULTEKIN

This study uses data from the Livingston survey of expectations to examine the Fisher hypothesis as a model relating expected stock returns and expected inflation. We show that the Fisher hypothesis holds much better for ex ante expectations than ex post realizations.

Stock Market Returns and Inflation: Evidence from Other Countries

Published: 03/01/1983   |   DOI: 10.1111/j.1540-6261.1983.tb03625.x

N. BULENT GULTEKIN

This paper investigates the relation between common stock returns and inflation in twenty‐six countries for the postwar period. Our results do not support the Fisher Hypothesis, which states that real rates of return on common stocks and expected inflation rates are independent and that nominal stock returns vary in one‐to‐one correspondence with expected inflation. There is a consistent lack of positive relation between stock returns and inflation in most of the countries.

Government Bond Returns, Measurement of Interest Rate Risk, and the Arbitrage Pricing Theory

Published: 03/01/1985   |   DOI: 10.1111/j.1540-6261.1985.tb04936.x

N. BULENT GULTEKIN, RICHARD J. ROGALSKI

Empirical tests are reported for Ross' arbitrage pricing theory using monthly data for U.S. Treasury securities during the 1960–1979 period. We find that mean returns on bond portfolios are linearly related to at least two factor loadings. Multivariate test results, however, are not consistent with the APT. Our sample data in the U.S. Treasury securities market are also not consistent with either version of the CAPM. One‐month‐ahead forecasts of excess returns using factor‐generating models are compared with corresponding naive predictions or predictions using the “market model” with various market portfolios.

Stock Return Anomalies and the Tests of the APT

Published: 12/01/1987   |   DOI: 10.1111/j.1540-6261.1987.tb04362.x

MUSTAFA N. GULTEKIN, N. BULENT GULTEKIN

This paper shows that the empirical tests of the Arbitrage Pricing Theory (APT) model are very sensitive to the anomalies observed in January in the stock returns data. There is a strong seasonal pattern in the estimates of the risk premia from the APT model. The most important implication of the findings in this paper is that the APT model can explain the risk‐return relation mostly for January. Once the January returns are excluded from the data, there is no significant relation between the expected stock returns and the risk measures predicted by the APT model.

A Critical Reexamination of the Empirical Evidence on the Arbitrage Pricing Theory

Published: 06/01/1984   |   DOI: 10.1111/j.1540-6261.1984.tb02312.x

PHOEBUS J. DHRYMES, IRWIN FRIEND, N. BULENT GULTEKIN

This paper demonstrates that the Roll and Ross (RR) and other previously published tests of the APT are subject to several basic limitations. There is a general nonequivalence of factor analyzing small groups of securities and factor analyzing a group of securities sufficiently large for the APT model to hold. It is found that as one increases the number of securities, the number of “factors” determined increases. This increase in the number of “factors” with larger groups of securities cannot readily be explained by a distinction between “priced” and “nonpriced” risk factors as it is impermissible to carry out tests on whether a given “risk factor is priced” using factor analytic procedures.

Capital Controls and International Capital Market Segmentation: The Evidence from the Japanese and American Stock Markets

Published: 09/01/1989   |   DOI: 10.1111/j.1540-6261.1989.tb02627.x

MUSTAFA N. GULTEKIN, N. BULENT GULTEKIN, ALESSANDRO PENATI

The paper focuses on two countries, Japan and the U.S., to test the integration of capital markets. In Japan, the enactment of the Foreign Exchange and Foreign Trade Control Law in December of 1980 amounted to a true regime switch that virtually eliminated capital controls. Using multifactor asset pricing models, we show that the price of risk in the U.S. and Japanese stock markets was different before, but not after, the liberalization. This evidence supports the view that governments are the source of international capital market segmentation.

New Tests of the APT and Their Implications

Published: 07/01/1985   |   DOI: 10.1111/j.1540-6261.1985.tb04988.x

PHOEBUS J. DHRYMES, IRWIN FRIEND, MUSTAFA N. GULTEKIN, N. BULENT GULTEKIN

This paper provides new tests of the arbitrage pricing theory (APT). Test results appear to be extremely sensitive to the number of securities used in the two stages of the tests of the APT model. New tests also indicate that unique risk is fully as important as common risk. While these tests have serious limitations, they are inconsistent with the APT.