Why Are Asset Returns Predictable?


Lüders, Erik


[img]
Preview
PDF
dp0248.pdf - Published

Download (444kB)

URL: http://ub-madoc.bib.uni-mannheim.de/397
URN: urn:nbn:de:bsz:180-madoc-3970
Document Type: Working paper
Year of publication: 2002
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: G12 ,
Subject headings (SWD): Preisgleichgewicht , Autokorrelation , Marktergebnis
Abstract: Starting from an information process governed by a geometric Brownian motion we show that asset returns are predictable if the elasticity of the pricing kernel is not constant. Declining [Increasing] elasticity of the pricing kernel leads to mean reversion and negatively autocorrelated asset returns [mean aversion and positively autocorrelated asset returns]. Under nonconstant elasticity of the pricing kernel financial ratios as the price-earnings ratio have predicitve power for future asset returns. In addition, it is shown that asset prices will be governed by a time-homogeneous stochastic differential equation only under the constant elasticity pricing kernel. Hence, usually asset price processes do not satisfy the assumptions needed for empirical estimation.
Additional information:

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




+ Citation Example and Export

Lüders, Erik (2002) Why Are Asset Returns Predictable? Open Access [Working paper]
[img]
Preview


+ Search Authors in

BASE: Lüders, Erik

Google Scholar: Lüders, Erik

+ Download Statistics

Downloads per month over past year

View more statistics



You have found an error? Please let us know about your desired correction here: E-Mail


Actions (login required)

Show item Show item