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Rational infinitely lived asset prices must be non-stationary

Roll, Richard (2002) Rational infinitely lived asset prices must be non-stationary. Journal of Banking and Finance, 26 (6). pp. 1093-1097. ISSN 0378-4266. doi:10.1016/s0378-4266(02)00207-8.

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Rational expectations must not be expected to change. Hence, a rational expectation about a future random quantity follows a pure martingale until the uncertainty is resolved. This implies that the expectation itself could be non-stationary and, in fact, is non-stationary if the increments are iid. Most asset prices are functions of expectations about future quantities, so asset prices also could be non-stationary. This has consequences for tests based on prices rather than on returns.

Item Type:Article
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Additional Information:© 2002 Elsevier. Received 15 January 2002, Accepted 15 January 2002, Available online 3 February 2002.
Subject Keywords:Martingale; Asset pricing; Non-stationarity
Issue or Number:6
Classification Code:JEL classification: G14; G12
Record Number:CaltechAUTHORS:20190426-145911451
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Official Citation:Richard Roll, Rational infinitely lived asset prices must be non-stationary, Journal of Banking & Finance, Volume 26, Issue 6, 2002, Pages 1093-1097, ISSN 0378-4266, (
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:95051
Deposited By: George Porter
Deposited On:29 Apr 2019 20:57
Last Modified:16 Nov 2021 17:09

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