Rambaccussing, Dooruj (2009): Exploiting price misalignements.
Download (779kB) | Preview
Signi�cant cumulative above the market returns can be made by diversifying wealth between equity and bond assets over time. The main premise of the trading rule model is to identify when should assets be held in the bond and equity markets in real time. The model involves comparing the net present value of the equity index with the actual price. Recursive and Rolling forecasts of dividends from three regression schemes are used to proxy expected dividends. The returns are sensitive to the forecasting model and the discount factor adopted in the net present value relation.
|Item Type:||MPRA Paper|
|Original Title:||Exploiting price misalignements|
|Keywords:||Net Present Value, Dividend forecasts, Real-time, Trading Rule, Excess volatility|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
|Depositing User:||Dooruj Rambaccussing|
|Date Deposited:||03. Dec 2010 18:00|
|Last Modified:||12. Feb 2013 19:57|
Doron Avramov, Stock return predictability and model uncertainty, Journal of Financial Economics 64 (2002), no. 3, 423 -458.
Doron Avramov, Stock return predictability and asset pricing models, The Review of Financial Studies 17 (2004), no. 3, 699�738.
George Bulkley and Nick Taylor, A cross-section test of the present value model, Journal of Empirical Finance 2 (1996), no. 4, 295-306.
George Bulkley and Ian Tonks, Are uk stock prices excessively volatile? trading rules and variance bound tests, The Economic Journal 99 (1989), no. 398, 1083�1098.
George Bulkley and Ian Tonks, Trading rules and excess volatility, The Journal of Financial and Quantitative Analysis 27 (1992), no. 3, 365�382.
Francis X. Diebold and Roberto S. Mariano, Comparing predictive accuracy, Journal of Business and Economic Statistics 13 (1995), no. 3, 253�-263.
Eugene F. Fama and Kenneth R. French, The equity premium, The Journal of Finance 57 (2002), no. 2, 637�659.
Hashem Pesaran, Davide Pettenuzzo, and Allan Timmermann, Learning,structural instability, and present value calculations., Econometric Reviews 26 (2007), no. 2-4, 253 -288.
James M. Poterba and Lawrence H. Summers, Mean reversion in stock prices(1988) : Evidence and implications, Journal of Financial Economics 22, no. 1, 27 -59.
David Rey, Market timing and model uncertainty: An exploratory study for the swiss stock market, Financial Markets and Portfolio Management 19 (2005), no. 3, 239�260. 11
Robert J. Shiller and Andrea E. Beltratti, Stock prices and bond yields: Can their comovements be explained in terms of present value models?,(1993).
Richard J. Sweeney, Beating the foreign exchange market, The Journal of Finance 41 (1986), no. 1, 163�182.
A. Timmermann, Elusive return predictability, International Journal of Forecasting 24 (2008), no. 1, 1�18.
Allan Timmermann and Clive W. J. Granger, E¢ cient market hypothesis and forecasting, International Journal of Forecasting 20 (2004), no. 1, 15 -27.
Allan G. Timmermann, How learning in �nancial markets generates excess volatility and predictability in stock prices, The Quarterly Journal of Economics 108 (1993), no. 4, 1135�1145.
Jules H. Van Binsbergen and Ralph S. Koijen, Predictive Regressions: A Present-Value Approach, SSRN eLibrary (2009) (English).