Is the US Stock Market Myopic?

Abstract

This paper tests whether the US stock market is myopic, in the sense that it places less than the appropriate weight on expected long-run earnings. The tests are made possible through reliance on a valuation model used by Ohlson [1995] that permits us, using only minimal assumptions, to make precise statements about how prices should relate to earnings expected at different points on the forecast horizon, under the null of market efficiency. We detect some anomalous stock price behavior, but find no support for the claim that stock prices exhibit myopic behavior as we have defined it here.