Schotman, Peter and Tschernig, Rolf and Budek, Jan (2008) Long Memory and the Term Structure of Risk. Journal of Financial Econometrics 6 (4), pp. 459-495.
This is the latest version of this item.
This paper explores the implications of asset return predictability for long-term portfolio choice when return-forecasting variables are fractionally integrated. For important predictor variables, like the dividend-price ratio and nominal and real interest rates, we estimate orders of integration around 0.8. This leads to substantial increases of the estimated long-term risk of stocks, bonds,
and cash compared to estimates obtained from a stationary VAR. Results are sensitive to the inclusion of the short-term nominal interest rate in the prediction equation of excess stock returns. Jointly with the dividend-price ratio it has significant predictive power, but contrary to the dividend-price ratio the nominal interest rate does not induce mitigating effects through mean reversion.
|Institutions:||Business, Economics and Information Systems > Institut für Volkswirtschaftslehre und Ökonometrie > Lehrstuhl für Ökonometrie (Prof. Dr. Rolf Tschernig)|
|Research groups and research centres:||Immobilien- und Kapitalmärkte|
|Keywords:||long-term portfolio choice, linear processes with fractional integration, term structure of risk|
|Subjects:||300 Social sciences > 330 Economics|
|Refereed:||Yes, this version has been refereed|
|Created at the University of Regensburg:||Yes|
|Owner:||Prof. Dr. Rolf Tschernig|
|Deposited On:||09 Dec 2008 12:23|
|Last Modified:||20 Jul 2011 21:23|
Available Versions of this Item
Long Memory and the Term Structure of Risk, working paper WP 06-009. (deposited 02 Aug 2006)
Long Memory and the Term Structure of Risk. (deposited 08 Dec 2008 16:49)
- Long Memory and the Term Structure of Risk. (deposited 09 Dec 2008 12:23) [Currently Displayed]
- Long Memory and the Term Structure of Risk. (deposited 08 Dec 2008 16:49)