Time-Varying Risk Premia and the Output Gap PDF Download
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Author: Ilan Cooper
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
The output gap, a production based macroeconomic variable, is a strong predictor of stock and bond returns. It is a prime business cycle indicator that does not include the level of market prices, thus removing any suspicion that returns are forecastable due to a fad in prices being washed away. The output gap forecasts returns both in-sample at the one month horizon as well as at longer horizons, and out-of-sample. It is robust to a host of checks that have troubled previous research. It subsumes sentiment based predictors, lending support for efficient market explanations of the predictability of excess returns.
Author: Ilan Cooper
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
The output gap, a production based macroeconomic variable, is a strong predictor of stock and bond returns. It is a prime business cycle indicator that does not include the level of market prices, thus removing any suspicion that returns are forecastable due to a fad in prices being washed away. The output gap forecasts returns both in-sample at the one month horizon as well as at longer horizons, and out-of-sample. It is robust to a host of checks that have troubled previous research. It subsumes sentiment based predictors, lending support for efficient market explanations of the predictability of excess returns.
Author: Felix Geiger
Publisher: Springer Science & Business Media
ISBN: 3642215750
Category : Business & Economics
Languages : en
Pages : 320
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Book Description
The determinants of yield curve dynamics have been thoroughly discussed in finance models. However, little can be said about the macroeconomic factors behind the movements of short- and long-term interest rates as well as the risk compensation demanded by financial investors. By taking on a macro-finance perspective, the book’s approach explicitly acknowledges the close feedback between monetary policy, the macroeconomy and financial conditions. Both theoretical and empirical models are applied in order to get a profound understanding of the interlinkages between economic activity, the conduct of monetary policy and the underlying macroeconomic factors of bond price movements. Moreover, the book identifies a broad risk-taking channel of monetary transmission which allows a reassessment of the role of financial constraints; it enables policy makers to develop new guidelines for monetary policy and for financial supervision of how to cope with evolving financial imbalances.
Author: Thomas Raffinot
Publisher:
ISBN:
Category :
Languages : en
Pages : 30
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Book Description
Asset returns are not correlated with the business cycle but are primarily caused by the economic cycles. To validate this claim, economic cycles are first rigorously defined, namely the classical business cycle and the growth cycle, better known as the output gap. The description of different economic phases is refined by jointly considering both economic cycles. It improves the classical analysis of economic cycles by considering sometimes two distinct phases and sometimes four distinct phases. The theoretical influence of economic cycles on time-varying risk premiums is then explained based on two key economic concepts: nominal GDP and adaptive expectations. Simple dynamic investment strategies confirm the importance of economical cycles, especially the growth cycle, for euro and dollar-based investors. At last, this economic cyclical framework can improve strategic asset allocation choices.
Author: John H. Cochrane
Publisher: Now Publishers Inc
ISBN: 1933019158
Category : Business & Economics
Languages : en
Pages : 117
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Book Description
Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Author: Massimiliano De Santis
Publisher:
ISBN:
Category :
Languages : en
Pages : 334
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Book Description
Author: Peter Hördahl
Publisher:
ISBN:
Category : Stocks
Languages : en
Pages : 153
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Book Description
Author: Francois Gourio
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
In order to develop a model that its both business cycles and asset pricing facts, this paper introduces a small, time-varying risk of economic disaster in an otherwise standard real business cycle model. This simple feature can generate large and volatile risk premia. The paper establishes two simple theoretical results: first, under some conditions, when the probability of disaster is constant, the risk of disaster does not affect the path of macroeconomic aggregates - a quot;separation theoremquot; between quantities and asset prices in the spirit of Tallarini (2000). Second, shocks to the probability of disaster, which generate variation in risk premia over time, are observationaly equivalent to preference shocks, and thus have a significant effect on macroeconomic aggregates: an increase in the perceived probability of disaster can lead to a collapse of investment and a recession, with no current or future change in productivity. This model thus allows to analyze the effect of a shock to quot;risk aversionquot; or a shock to beliefs on the macroeconomy (e.g. Fall 2008). Interestingly, this model is, at least qualitatively, consistent with the well-known facts that the stock market, the yield curve, and the short rate predict GDP growth, facts which are difficult to replicate in a standard model.
Author: Angela J. Black
Publisher:
ISBN:
Category : Risk
Languages : en
Pages : 23
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Book Description
Author: Maarten Meeuwis
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Author: John Y. Campbell
Publisher: OUP Oxford
ISBN: 019160691X
Category : Business & Economics
Languages : en
Pages : 272
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Book Description
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
