Modeling the persistence in expected returns

Dooruj Rambaccussing (Lead / Corresponding author)

    Research output: Contribution to conferencePaperpeer-review

    Abstract

    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
    http://www.res.org.uk/view/2012postgraduateJob.html

    Conference

    ConferenceRoyal Economic Society - PhD meeting 2012
    CountryUnited Kingdom
    CityLondon
    Period21/01/1222/01/12
    Internet address

    Keywords

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

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