Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets
NBER Working Paper No. 3790 (Also Reprint No. r1745)
The paper characterizes predictable components in excess rates of returns on major equity and foreign exchange markets using lagged excess returns, dividend yields, and forward premiums as instruments. Vector autoregressive techniques demonstrate one-step-ahead predictability and provide implied long-horizon statistics. We estimate latent variable models as constrained counterparts to the VARs. The predictability of returns is related to asset pricing models by examining the volatility bounds on intertemporal marginal rates of substitution.
Document Object Identifier (DOI): 10.3386/w3790
Published: Journal of Finance, Vol. 47, No. 2 (June 1992): 467-509. citation courtesy of
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