Results 1  10
of
369
Predictive regressions
 Journal of Financial Economics
, 1999
"... When a rate of return is regressed on a lagged stochastic regressor, such as a dividend yield, the regression disturbance is correlated with the regressor's innovation. The OLS estimator's "nitesample properties, derived here, can depart substantially from the standard regression set ..."
Abstract

Cited by 318 (13 self)
 Add to MetaCart
When a rate of return is regressed on a lagged stochastic regressor, such as a dividend yield, the regression disturbance is correlated with the regressor's innovation. The OLS estimator's "nitesample properties, derived here, can depart substantially from the standard regression setting. Bayesian posterior distributions for the regression parameters are obtained under speci"cations that di!er with respect to (i) prior beliefs about the autocorrelation of the regressor and (ii) whether the initial observation of the regressor is speci"ed as "xed or stochastic. The posteriors di!er across such speci"cations, and asset allocations in the presence of estimation risk exhibit sensitivity to those
Asset pricing at the millennium
 Journal of Finance
"... This paper surveys the field of asset pricing. The emphasis is on the interplay between theory and empirical work and on the tradeoff between risk and return. Modern research seeks to understand the behavior of the stochastic discount factor ~SDF! that prices all assets in the economy. The behavior ..."
Abstract

Cited by 155 (2 self)
 Add to MetaCart
This paper surveys the field of asset pricing. The emphasis is on the interplay between theory and empirical work and on the tradeoff between risk and return. Modern research seeks to understand the behavior of the stochastic discount factor ~SDF! that prices all assets in the economy. The behavior of the term structure of real interest rates restricts the conditional mean of the SDF, whereas patterns of risk premia restrict its conditional volatility and factor structure. Stylized facts about interest rates, aggregate stock prices, and crosssectional patterns in stock returns have stimulated new research on optimal portfolio choice, intertemporal equilibrium models, and behavioral finance. This paper surveys the field of asset pricing. The emphasis is on the interplay between theory and empirical work. Theorists develop models with testable predictions; empirical researchers document “puzzles”—stylized facts that fail to fit established theories—and this stimulates the development of new theories. Such a process is part of the normal development of any science. Asset pricing, like the rest of economics, faces the special challenge that data are generated naturally rather than experimentally, and so researchers cannot control the quantity of data or the random shocks that affect the data. A particularly interesting characteristic of the asset pricing field is that these random shocks are also the subject matter of the theory. As Campbell, Lo, and MacKinlay ~1997, Chap. 1, p. 3! put it: What distinguishes financial economics is the central role that uncertainty plays in both financial theory and its empirical implementation. The starting point for every financial model is the uncertainty facing investors, and the substance of every financial model involves the impact of uncertainty on the behavior of investors and, ultimately, on mar* Department of Economics, Harvard University, Cambridge, Massachusetts
International Asset Allocation with Regime Shifts, Review of Financial Studies, forthcoming
 Business Cycles in International Historical Perspective, Journal of Economic Perspectives
, 2002
"... especially grateful for the thoughtful and thorough comments of the referee which greatly improved the paper. Geert Bekaert thanks the NSF for financial support. ..."
Abstract

Cited by 142 (4 self)
 Add to MetaCart
especially grateful for the thoughtful and thorough comments of the referee which greatly improved the paper. Geert Bekaert thanks the NSF for financial support.
Estimating Portfolio and Consumption Choice: A Conditional Euler Equations Approach
 JOURNAL OF FINANCE
, 1999
"... This paper develops a nonparametric approach to examine how portfolio and consumption choice depends on variables that forecast timevarying investment opportunities. I estimate singleperiod and multiperiod portfolio and consumption rules of an investor with constant relative risk aversion and a on ..."
Abstract

Cited by 138 (11 self)
 Add to MetaCart
This paper develops a nonparametric approach to examine how portfolio and consumption choice depends on variables that forecast timevarying investment opportunities. I estimate singleperiod and multiperiod portfolio and consumption rules of an investor with constant relative risk aversion and a onemonth to 20year horizon. The investor allocates wealth to the NYSE index and a 30day Treasury bill. I find that the portfolio choice varies significantly with the dividend yield, default premium, term premium, and lagged excess return. Furthermore, the optimal decisions depend on the investor’s horizon and rebalancing frequency.
Stock Return Predictability and Model Uncertainty
, 2002
"... We use Bayesian model averaging to analyze the sample evidence on return predictability in the presence of model uncertainty. The analysis reveals insample and outofsample predictability, and shows that the outofsample performance of the Bayesian approach is superior to that of model selecti ..."
Abstract

Cited by 122 (4 self)
 Add to MetaCart
We use Bayesian model averaging to analyze the sample evidence on return predictability in the presence of model uncertainty. The analysis reveals insample and outofsample predictability, and shows that the outofsample performance of the Bayesian approach is superior to that of model selection criteria. We find that term and market premia are robust predictors. Moreover, smallcap value stocks appear more predictable than largecap growth stocks. We also investigate the implications of model uncertainty from investment management perspectives. We show that model uncertainty is more important than estimation risk, and investors who discard model uncertainty face large utility losses.
Transaction costs and predictability: Some utility cost calculations
 Journal of Financial Economics
, 1999
"... We examine the loss in utility for a consumer who ignores any or all of the following: (1) the multiperiod nature of the consumer's portfoliochoice problem, (2) the empirically documented predictability of asset returns, or (3) transaction costs. Both the costs of behaving myopically and igno ..."
Abstract

Cited by 113 (17 self)
 Add to MetaCart
(Show Context)
We examine the loss in utility for a consumer who ignores any or all of the following: (1) the multiperiod nature of the consumer's portfoliochoice problem, (2) the empirically documented predictability of asset returns, or (3) transaction costs. Both the costs of behaving myopically and ignoring predictability can be substantial, although allowing for intermediate consumption reduces these costs. Ignoring realistic transaction costs ("xed and proportional) imposes signi"cant utility costs that range from 0.8 % up to 16.9 % of wealth. For the scenarios that we consider, the presence of transaction costs always increases the utility cost of behaving myopically, but decreases the utility cost of
Portfolio and consumption decisions under meanreverting returns: An exact solution for complete markets
 Journal of Financial and Quantitative Analysis 37, 63–91. The Journal of Finance Wachter, Jessica A
, 2003
"... This paper solves, in closed form, the optimal portfolio choice problem for an investor with utility over consumption under meanreverting returns. Previous solutions either require approximations, numerical methods, or the assumption that the investor does not consume over his lifetime. This paper ..."
Abstract

Cited by 107 (7 self)
 Add to MetaCart
This paper solves, in closed form, the optimal portfolio choice problem for an investor with utility over consumption under meanreverting returns. Previous solutions either require approximations, numerical methods, or the assumption that the investor does not consume over his lifetime. This paper breaks the impasse by assuming that markets are complete. The solution leads to a new understanding of hedging demand and of the behavior of the approximate loglinear solution. The portfolio allocation takes the form of a weighted average and is shown to be analogous to duration for coupon bonds. Through this analogy, the notion of investment horizon is extended to that of an investor who consumes at multiple points in time.
The Dog That Did Not Bark: A Defense of Return Predictability
, 2006
"... If returns are not predictable, dividend growth must be predictable, to generate the observed variation in divided yields. I find that the absence of dividend growth predictability gives stronger evidence than does the presence of return predictability. Longhorizon return forecasts give the same st ..."
Abstract

Cited by 103 (8 self)
 Add to MetaCart
If returns are not predictable, dividend growth must be predictable, to generate the observed variation in divided yields. I find that the absence of dividend growth predictability gives stronger evidence than does the presence of return predictability. Longhorizon return forecasts give the same strong evidence. These tests exploit the negative correlation of return forecasts and dividendyield autocorrelation across samples, together with sensible upper bounds on dividendyield autocorrelation, to deliver more powerful statistics. I reconcile my findings with the literature that finds poor power in longhorizon return forecasts, and with the literature that notes the poor outofsample R² of returnforecasting regressions.