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In this paper, we show that their results rely on misspecified Markov switching models for the endowment process. Once the proper Markov specification is chosen for the endowment process, the model does not produce mean reversion of the magnitude detected in the data. Furthermore, the small amount of mean reversion produced by the model is due only to small sample bias. We also show that this model is unable to predict negative excess returns, contrary to empirical evidence.<\/jats:p>","DOI":"10.1002\/jae.3950090103","type":"journal-article","created":{"date-parts":[[2007,7,12]],"date-time":"2007-07-12T17:20:23Z","timestamp":1184260823000},"page":"19-29","source":"Crossref","is-referenced-by-count":35,"title":["Can a well\u2010fitted equilibrium asset\u2010pricing model produce mean reversion?"],"prefix":"10.1002","volume":"9","author":[{"given":"M.","family":"Bonomo","sequence":"first","affiliation":[],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"R.","family":"Garcia","sequence":"additional","affiliation":[],"role":[{"role":"author","vocabulary":"crossref"}]}],"member":"311","published-online":{"date-parts":[[2006,11,7]]},"reference":[{"key":"e_1_2_1_2_1","doi-asserted-by":"crossref","unstructured":"Abel A. B.(1992) \u2018Exact solutions for expected rates of return under Markov regime switching: implications for the equity premium puzzle\u2019 NBER Working Paper no. 4110.","DOI":"10.3386\/w4110"},{"key":"e_1_2_1_3_1","volume-title":"The American Business Cycle","author":"Balke N. S.","year":"1986"},{"key":"e_1_2_1_4_1","unstructured":"Bonomo M. andR.Garcia(1991a) \u2018Can a well\u2010fitted equilibrium asset pricing model produce mean reversion?\u2019 CRDE Working Paper no. 3091 Universit\u00e9 de Montr\u00e9al and Working Paper no. 270 Department of Economics PUC\u2010Rio."},{"key":"e_1_2_1_5_1","unstructured":"Bonomo M. andR.Garcia(1991b) \u2018Consumption and equilibrium asset pricing: an empirical assessment\u2019 CRDE Working Paper no. 2991 Universit\u00e9 de Montr\u00e9al."},{"key":"e_1_2_1_6_1","doi-asserted-by":"publisher","DOI":"10.1086\/261502"},{"key":"e_1_2_1_7_1","first-page":"398","article-title":"Mean reversion in equilibrium asset prices","volume":"80","author":"Cecchetti S. G.","year":"1990","journal-title":"American Economic Review"},{"key":"e_1_2_1_8_1","doi-asserted-by":"crossref","unstructured":"Cecchetti S. G. P.LamandN. C.Mark(1991) \u2018The equity premium and the risk free rate: matching the moments\u2019 NBER Working Paper no. 3752.","DOI":"10.3386\/w3752"},{"key":"e_1_2_1_9_1","doi-asserted-by":"publisher","DOI":"10.1086\/261535"},{"key":"e_1_2_1_10_1","unstructured":"Garcia R.(1992) \u2018Asymptotic null distribution of the likelihood ratio test in Markov switching models\u2019 Unpublished manuscript Universit\u00e9 de Montr\u00e9al May."},{"key":"e_1_2_1_11_1","doi-asserted-by":"publisher","DOI":"10.2307\/1912559"},{"key":"e_1_2_1_12_1","unstructured":"Hansen B. E.(1991) \u2018Inference when a nuisance parameter is not identified under the null\u2019 Unpublished manuscript Rochester University."},{"key":"e_1_2_1_13_1","volume-title":"Stocks, Bonds, Bills and Inflation 1988 Yearbook","author":"Ibbotson R. 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Simon Graduate School of Business Administration University of Rochester."},{"key":"e_1_2_1_21_1","doi-asserted-by":"publisher","DOI":"10.1016\/0165-1765(86)90168-0"},{"key":"e_1_2_1_22_1","doi-asserted-by":"publisher","DOI":"10.1086\/296394"}],"container-title":["Journal of Applied Econometrics"],"original-title":[],"language":"en","link":[{"URL":"https:\/\/api.wiley.com\/onlinelibrary\/tdm\/v1\/articles\/10.1002%2Fjae.3950090103","content-type":"unspecified","content-version":"vor","intended-application":"text-mining"},{"URL":"https:\/\/onlinelibrary.wiley.com\/doi\/pdf\/10.1002\/jae.3950090103","content-type":"unspecified","content-version":"vor","intended-application":"similarity-checking"}],"deposited":{"date-parts":[[2023,10,24]],"date-time":"2023-10-24T22:00:31Z","timestamp":1698184831000},"score":1,"resource":{"primary":{"URL":"https:\/\/onlinelibrary.wiley.com\/doi\/10.1002\/jae.3950090103"}},"subtitle":[],"short-title":[],"issued":{"date-parts":[[1994,1]]},"references-count":21,"journal-issue":{"issue":"1","published-print":{"date-parts":[[1994,1]]}},"alternative-id":["10.1002\/jae.3950090103"],"URL":"https:\/\/doi.org\/10.1002\/jae.3950090103","archive":["Portico"],"relation":{},"ISSN":["0883-7252","1099-1255"],"issn-type":[{"value":"0883-7252","type":"print"},{"value":"1099-1255","type":"electronic"}],"subject":[],"published":{"date-parts":[[1994,1]]}}}