Budek, Jan and Schotman, Peter and Tschernig, Rolf (2006) Long Memory and the Term Structure of Risk, working paper WP 06-009. Working Paper.
This paper focuses on the implications of asset return predictability on long-term portfolio choice when return forecasting variables exhibit long memory. Recent research in empirical finance argues that expected asset returns are time-varying and relates them to various predicting variables that historically reveal very gradual movements in time; hence, we aim at careful modelling of their persistence properties. For that purpose, we exploit the class of fractionally integrated processes. Our theoretical derivations indicate profound impact of the long-memory component on optimal long-term portfolio weights. We illustrate our approach to the modelling of asset return dynamics on post-war US data for equities, Treasury bonds, and cash.
|Item Type:||Monograph (Working Paper)|
|Date:||24 February 2006|
|Institutions:||Business, Economics and Information Systems > Institut für Volkswirtschaftslehre und Ökonometrie > Lehrstuhl für Ökonometrie (Prof. Dr. Rolf Tschernig)|
|Keywords:||Long-term portfolio choice; Term structure of risk; Linear processes with fractional integration|
|Subjects:||300 Social sciences > 330 Economics|
|Created at the University of Regensburg:||Unknown|
|Owner:||Prof. Dr. Rolf Tschernig|
|Deposited On:||02 Aug 2006|
|Last Modified:||20 Jul 2011 20:48|
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