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Long Memory and the Term Structure of Risk

URN to cite this document:
Schotman, Peter ; Tschernig, Rolf ; Budek, Jan

This is the latest version of this item.

Date of publication of this fulltext: 05 Aug 2009 13:49


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, ...


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