Long Memory and the Term Structure of Risk, working paper WP 06-009

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Dokumentenart:	Monographie (Working Paper)
Seitenanzahl:	29
Datum:	24 Februar 2006
Institutionen:	Wirtschaftswissenschaften > Institut für Volkswirtschaftslehre und Ökonometrie > Lehrstuhl für Ökonometrie (Prof. Dr. Rolf Tschernig)
Stichwörter / Keywords:	Long-term portfolio choice; Term structure of risk; Linear processes with fractional integration
Dewey-Dezimal-Klassifikation:	300 Sozialwissenschaften > 330 Wirtschaft
Status:	Veröffentlicht
Begutachtet:	Ja, diese Version wurde begutachtet
An der Universität Regensburg entstanden:	Unbekannt / Keine Angabe
Dokumenten-ID:	216

Zusammenfassung

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 ...

Zusammenfassung

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.

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