Predictable returns and asset allocation: should a skeptical investor time the market?
Are excess returns predictable and if so, what does this mean for investors? Previous literature has tended toward two polar viewpoints: that predictability is useful only if the statistical evidence for it is incontrovertible, or that predictability should affect portfolio choice, even if the evide...
Gespeichert in:
| Hauptverfasser: | , |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Cambridge, Mass.
National Bureau of Economic Research
2007
|
| Schriftenreihe: | Working paper series / National Bureau of Economic Research
13165 |
| Online-Zugang: | Volltext |
| Zusammenfassung: | Are excess returns predictable and if so, what does this mean for investors? Previous literature has tended toward two polar viewpoints: that predictability is useful only if the statistical evidence for it is incontrovertible, or that predictability should affect portfolio choice, even if the evidence is weak according to conventional measures. This paper models an intermediate view: that both data and theory are useful for decision-making. We investigate optimal portfolio choice for an investor who is skeptical about the amount of predictability in the data. Skepticism is modeled as an informative prior over the R2̂ of the predictive regression. We find that the evidence is sufficient to convince even an investor with a highly skeptical prior to vary his portfolio on the basis of the dividend-price ratio and the yield spread. The resulting weights are less volatile and deliver superior out-of-sample performance as compared to the weights implied by an entirely model-based or data-based view. |
| Beschreibung: | Literaturverz. S. 34 - 41 |
| Beschreibung: | 41, [19] S. graph. Darst. 22 cm |
Internformat
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| 490 | 1 | |a Working paper series / National Bureau of Economic Research |v 13165 | |
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| 520 | 8 | |a Are excess returns predictable and if so, what does this mean for investors? Previous literature has tended toward two polar viewpoints: that predictability is useful only if the statistical evidence for it is incontrovertible, or that predictability should affect portfolio choice, even if the evidence is weak according to conventional measures. This paper models an intermediate view: that both data and theory are useful for decision-making. We investigate optimal portfolio choice for an investor who is skeptical about the amount of predictability in the data. Skepticism is modeled as an informative prior over the R2̂ of the predictive regression. We find that the evidence is sufficient to convince even an investor with a highly skeptical prior to vary his portfolio on the basis of the dividend-price ratio and the yield spread. The resulting weights are less volatile and deliver superior out-of-sample performance as compared to the weights implied by an entirely model-based or data-based view. | |
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| id | DE-604.BV023593074 |
| illustrated | Illustrated |
| index_date | 2024-07-02T22:41:31Z |
| indexdate | 2024-07-09T21:25:14Z |
| institution | BVB |
| language | English |
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| physical | 41, [19] S. graph. Darst. 22 cm |
| publishDate | 2007 |
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| publisher | National Bureau of Economic Research |
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| spelling | Wachter, Jessica Verfasser (DE-588)128975989 aut Predictable returns and asset allocation should a skeptical investor time the market? Jessica A. Wachter ; Missaka Warusawitharana Cambridge, Mass. National Bureau of Economic Research 2007 41, [19] S. graph. Darst. 22 cm txt rdacontent n rdamedia nc rdacarrier Working paper series / National Bureau of Economic Research 13165 Literaturverz. S. 34 - 41 Are excess returns predictable and if so, what does this mean for investors? Previous literature has tended toward two polar viewpoints: that predictability is useful only if the statistical evidence for it is incontrovertible, or that predictability should affect portfolio choice, even if the evidence is weak according to conventional measures. This paper models an intermediate view: that both data and theory are useful for decision-making. We investigate optimal portfolio choice for an investor who is skeptical about the amount of predictability in the data. Skepticism is modeled as an informative prior over the R2̂ of the predictive regression. We find that the evidence is sufficient to convince even an investor with a highly skeptical prior to vary his portfolio on the basis of the dividend-price ratio and the yield spread. The resulting weights are less volatile and deliver superior out-of-sample performance as compared to the weights implied by an entirely model-based or data-based view. Warusawitharana, Missaka Verfasser (DE-588)133433714 aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.> NBER working paper series 13165 (DE-604)BV002801238 13165 http://papers.nber.org/papers/w13165.pdf kostenfrei Volltext |
| spellingShingle | Wachter, Jessica Warusawitharana, Missaka Predictable returns and asset allocation should a skeptical investor time the market? |
| title | Predictable returns and asset allocation should a skeptical investor time the market? |
| title_auth | Predictable returns and asset allocation should a skeptical investor time the market? |
| title_exact_search | Predictable returns and asset allocation should a skeptical investor time the market? |
| title_exact_search_txtP | Predictable returns and asset allocation should a skeptical investor time the market? |
| title_full | Predictable returns and asset allocation should a skeptical investor time the market? Jessica A. Wachter ; Missaka Warusawitharana |
| title_fullStr | Predictable returns and asset allocation should a skeptical investor time the market? Jessica A. Wachter ; Missaka Warusawitharana |
| title_full_unstemmed | Predictable returns and asset allocation should a skeptical investor time the market? Jessica A. Wachter ; Missaka Warusawitharana |
| title_short | Predictable returns and asset allocation |
| title_sort | predictable returns and asset allocation should a skeptical investor time the market |
| title_sub | should a skeptical investor time the market? |
| url | http://papers.nber.org/papers/w13165.pdf |
| volume_link | (DE-604)BV002801238 |
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