Download or read book Regime Shifts and Stock Return Predictability written by Regina Hammerschmid and published by . This book was released on 2019 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Identifying economic regimes is useful in a world of time-varying risk premia. We apply regime switching models to common factors proxying for the macroeconomic regime and show that the ensuing regime factor is relevant in forecasting the equity risk premium. Moreover, the relevance of this regime factor is preserved in the presence of fundamental variables and technical indicators which are known to predict equity risk premia. Based on multiple predictive regressions and pooled forecasts, the macroeconomic regime factor is deemed complementary relative to the fundamental and technical information sets. Finally, these forecasts exhibit significant out-of-sample predictability that ultimately translates into considerable utility gains in a mean-variance portfolio strategy.

Download or read book Investor Sentiment Regimes and Stock Returns written by San-Lin Chung and published by . This book was released on 2009 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we empirically examine the relationship between return predictability and investor sentiment when the stock fundamentals exhibit regime shifts. This study is motivated by the fact that the predictive power of sentiment may be weakened if we do not separately identify the price change as a correction of a mispricing due to sentiment and/or an adjustment dynamic in relation to the regime shift. We propose a simple way to explore this issue within the conventional predictive regression framework and a testing procedure to tackle the potential econometric problems. Our main empirical findings are: (1) the effects of sentiment on predicting the cross-section of future stock returns are significant only under a certain regime (bullish regime); (2) dividend- and earning-oriented portfolios show strong conditional predictability patterns only after conditioning on sentiment and regime; (3) the appearance of the size and value effects is associated with sentiment and the state of regime; (4) the cross-sectional predictability patterns associated with sentiment reflect the mispricing, not the compensation for systematic risk.

Download or read book Regime Changes in the Relationship between Stock Returns and the Macroeconomy written by Stuart Hyde and published by . This book was released on 2005 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the presence of nonlinear influences in the relationship between stock returns and the macroeconomy is examined for eight countries. The markets chosen are Belgium, Canada, France, Germany, Ireland, Japan, U.K. and the U.S. Specifically we analyse both the contemporaneous (asset pricing) relationship and the lagged (return predictability) relationship. Significantly the asset pricing relationship highlights the importance of accounting for variations in the relationships between bear markets and other states. Nonlinearity is accounted for via regime switching using a smooth transition regression (STR) model with the world market return as the transition variable. There is evidence of nonlinearity in all countries. Given the potentially complex nonlinearities in the determination of stock market prices, the possibility of multiple regimes (MRSTR) is also investigated. With the exception of Belgium, all markets exhibit evidence of multiple regimes. Results show that covariance with the world market portfolio increases during 'crisis' regimes, complementing the findings of Longin and Solnik (2001) and Ang, Chen and Xing (2004). Interest rate and inflation variables are strong determinants of stock returns while dividend yields and oil prices only influence returns in regimes identified by multiple regime models. Industrial production growth is not a significant factor. Out-of-sample forecasting of the nonlinear models is not superior to that of the linear models. However the smooth transition regression models predict direction more frequently than linear specifications. Analysis of return predictability produces results consistent with the standard stylised facts, i.e. that the dividend yield and term structure variables are important predictors of future stock returns.

Download or read book Regime Shifts and Changing Volatility in Stock Returns written by Pietro Veronesi and published by . This book was released on 1999 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: I present an intertemporal asset pricing model of learning to explain the GARCH behavior of stock returns and the intertemporal variation of expected returns. I assume that dividends follow a diffusion process whose drift rate shifts between two unobservable states at random times. I first show that the asset price is increasing and convex in investors' posterior probability of the good state. I then characterize the changes in asset price sensitivity to news, return volatility and expected returns as function of investors' level of uncertainty over the state of the economy.

Download or read book Regime Changes in Stock Returns written by Ramon P. DeGennaro and published by . This book was released on 2003 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper models stock returns as a function of three components: a constant expected return, the impact of the mechanism for executing trades, and a rational expectations error. We examine changes in these parameters using Goldfeld and Quandt's (1976) deterministic switching based on time. This method not only allows us to learn if and when the regression structure changes, but also provides a measure of the speed of transition from one regime to the other. We find that, regardless of the sample period, all regime shifts are due to changes in the estimated variance of the error. This is true even if the ex post return on the stock portfolio or the estimated rate of compensation for financing costs changes substantially. In addition, these structural shifts occur during substantial changes in the business environment, driven by important political decisions. We interpret these findings as suggesting that government policy strongly affects the volatility of the stock market.

Download or read book Handbook of Economic Forecasting written by Graham Elliott and published by Newnes. This book was released on 2013-08-23 with total page 719 pages. Available in PDF, EPUB and Kindle. Book excerpt: The highly prized ability to make financial plans with some certainty about the future comes from the core fields of economics. In recent years the availability of more data, analytical tools of greater precision, and ex post studies of business decisions have increased demand for information about economic forecasting. Volumes 2A and 2B, which follows Nobel laureate Clive Granger's Volume 1 (2006), concentrate on two major subjects. Volume 2A covers innovations in methodologies, specifically macroforecasting and forecasting financial variables. Volume 2B investigates commercial applications, with sections on forecasters' objectives and methodologies. Experts provide surveys of a large range of literature scattered across applied and theoretical statistics journals as well as econometrics and empirical economics journals. The Handbook of Economic Forecasting Volumes 2A and 2B provide a unique compilation of chapters giving a coherent overview of forecasting theory and applications in one place and with up-to-date accounts of all major conceptual issues. Focuses on innovation in economic forecasting via industry applications Presents coherent summaries of subjects in economic forecasting that stretch from methodologies to applications Makes details about economic forecasting accessible to scholars in fields outside economics

Download or read book Pockets of Predictability written by Leland E. Farmer and published by . This book was released on 2018 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Return predictability in the U.S. stock market is local in time as short periods with significant predictability ('pockets') are interspersed with long periods with little or no evidence of return predictability. We document this empirically using a flexible non-parametric approach and explore possible explanations of this finding, including time-varying risk premia. We find that short-lived predictability pockets are inconsistent with a broad class of affine asset pricing models. Conversely, pockets of return predictability are more in line with a model with investors' incomplete learning about a highly persistent growth component in the underlying cash flow process which undergoes occasional regime shifts.

Download or read book Essentials of Time Series for Financial Applications written by Massimo Guidolin and published by Academic Press. This book was released on 2018-05-29 with total page 435 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essentials of Time Series for Financial Applications serves as an agile reference for upper level students and practitioners who desire a formal, easy-to-follow introduction to the most important time series methods applied in financial applications (pricing, asset management, quant strategies, and risk management). Real-life data and examples developed with EViews illustrate the links between the formal apparatus and the applications. The examples either directly exploit the tools that EViews makes available or use programs that by employing EViews implement specific topics or techniques. The book balances a formal framework with as few proofs as possible against many examples that support its central ideas. Boxes are used throughout to remind readers of technical aspects and definitions and to present examples in a compact fashion, with full details (workout files) available in an on-line appendix. The more advanced chapters provide discussion sections that refer to more advanced textbooks or detailed proofs. Provides practical, hands-on examples in time-series econometrics Presents a more application-oriented, less technical book on financial econometrics Offers rigorous coverage, including technical aspects and references for the proofs, despite being an introduction Features examples worked out in EViews (9 or higher)

Download or read book Rare Events and Return Predictability in a Regime Switching Setting written by Heinrich Kick and published by . This book was released on 2014 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inspired by the recent literature on rare events and their impact on asset prices, we investigate the return predictability properties of a set of variables related to the risk of tail events extracted from equity market information and measures based on credit spreads. Our variables outperform traditional variables in terms of fit at the monthly prediction horizon. We employ both a linear model as well as a model allowing for structural breaks to obtain a better understanding of the nature of the predictability relationship. We find evidence for pronounced changes in the way the predictor variables relate to future realized returns between normal times and states of crisis, supporting theoretical models that accommodate these changes. The out-of-sample investigations show that when allowing the transition probabilities to depend on a crisis related variable, the regime switching model yields more precise forecasts than any linear model or naive forecasting method considered here. However, the regime switching models do not have a general advantage over linear models due to the difficulties in forecasting the correct future state for longer forecasting horizons, as structural breaks tend to occur suddenly.

Download or read book Regime Shifts Contagion and Predictability in Financial Markets written by Apostolos P. Thomadakis and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Regime Shifts and Volatility Spillovers on International Stock Markets written by John Hassler and published by . This book was released on 1995 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Regime Shifts Risk and the Term Structure written by Martin D.D. Evans and published by . This book was released on 2010 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops and estimates a general equilibrium model for the term structures of nominal and real interest rates that incorporates regime-switching into the dynamics of the state variables. The model generates time-varying risk premia via changes in the covariance structure of the state variables and Peso problems through regime-switching. When the model is estimated using real and nominal yields from the U.K., I find that Peso problems emanating from instability in inflation have a significant impact on the nominal term structure. Peso problems affect (i) the sample predictability of excess returns, (ii) nominal term premia, and (iii) the inflation risk premia linking real and nominal yields with expected inflation.

Download or read book Regime Shifts and Volatility in BRIICKS Stock Markets written by Wasim Ahmad and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the regime shifts and stock market volatility in the stock market returns of seven emerging economies popularly called as 'BRIICKS' which stands for Brazil, Russia, India, Indonesia, China, South Korea and South Africa, over the period from February, 1996 to January, 2012 by applying Markov regime switching in mean-variance model. The employed model finds two regimes in each of these markets. The identified regimes are further utilized in formulating the asset allocation strategies based on market synchronization and Sharpe ratio. The results suggest that BRIICKS is not a homogeneous asset class and each market should be independently evaluated in terms of its regime switching behavior, volatility persistence and level of synchronization with other emerging markets. The study finally concludes that Russia, India and China as the best assets to invest within this emerging market basket which can be pooled with a mature market portfolio to achieve further benefits of risk diversification.

Download or read book Forecasting Expected Returns in the Financial Markets written by Stephen Satchell and published by Elsevier. This book was released on 2011-04-08 with total page 299 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasting returns is as important as forecasting volatility in multiple areas of finance. This topic, essential to practitioners, is also studied by academics. In this new book, Dr Stephen Satchell brings together a collection of leading thinkers and practitioners from around the world who address this complex problem using the latest quantitative techniques. *Forecasting expected returns is an essential aspect of finance and highly technical *The first collection of papers to present new and developing techniques *International authors present both academic and practitioner perspectives

Download or read book Handbook of Financial Econometrics written by Yacine Ait-Sahalia and published by Elsevier. This book was released on 2009-10-19 with total page 809 pages. Available in PDF, EPUB and Kindle. Book excerpt: This collection of original articles—8 years in the making—shines a bright light on recent advances in financial econometrics. From a survey of mathematical and statistical tools for understanding nonlinear Markov processes to an exploration of the time-series evolution of the risk-return tradeoff for stock market investment, noted scholars Yacine Aït-Sahalia and Lars Peter Hansen benchmark the current state of knowledge while contributors build a framework for its growth. Whether in the presence of statistical uncertainty or the proven advantages and limitations of value at risk models, readers will discover that they can set few constraints on the value of this long-awaited volume. Presents a broad survey of current research—from local characterizations of the Markov process dynamics to financial market trading activity Contributors include Nobel Laureate Robert Engle and leading econometricians Offers a clarity of method and explanation unavailable in other financial econometrics collections

Download or read book Regime Changes in Stock Returns written by Nan-Ting Chou and published by . This book was released on 1989 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Stock Return Predictability written by Alex D. Patelis and published by . This book was released on 1996 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: