Modeling the persistence in expected returns

Dooruj Rambaccussing (Lead / Corresponding author)

    Research output: Contribution to conferencePaperpeer-review


    The major contribution of this paper is to explicitly model the persistence in the time series of expected returns. The series of expected returns is derived from a state space representation of the net present value identity relating expected returns and expected dividend (earnings) growth to the observed price dividend (earnings) ratio. The state space model is adjusted in order to include the possibility of expected returns following an autoregressive fractional integrated (ARFIMA) process which captures the persistence of the process. The new ARFIMA model performs moderately compared to the simple autoregressive process, which may be due to the presence of different regimes and structural breaks. The expected returns series is applied in three instances namely in predictive regressions, analysing the relationship between consumption and discount rates and also in a market timing strategy.
    Original languageEnglish
    Number of pages42
    Publication statusPublished - 2012
    EventRoyal Economic Society - PhD meeting 2012 - Queen Mary University of London, London, United Kingdom
    Duration: 21 Jan 201222 Jan 2012


    ConferenceRoyal Economic Society - PhD meeting 2012
    Country/TerritoryUnited Kingdom
    Internet address


    • Expected Returns
    • Persistence
    • Present Value
    • State Space Modelling

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)
    • Economics and Econometrics
    • Finance


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