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http://ssrn.com/abstract=2184260
 
 

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The Scale of Predictability


Federico M. Bandi


University of Chicago - Booth School of Business

Benoit Perron


University of Montreal - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO); University of Montreal - Center for Interuniversity Research in Econometrics

Andrea Tamoni


London School of Economics & Political Science (LSE)

Claudio Tebaldi


Bocconi University, IGIER and CAREFIN

September 30, 2014


Abstract:     
We view economic time series as the result of a cascade of shocks occurring at different times and different frequencies (scales). We suggest that economic relations that are found to be elusive when using raw data may hold true for different layers (details) in the cascade of economic shocks. This observation leads to a notion of a scale-specific predictability. Using direct extraction of the details and two-way aggregation, we provide strong evidence of risk compensations in market returns, as well as of an unusually clear link between macroeconomic uncertainty and uncertainty in financial markets, at frequencies lower than the business cycle.

Number of Pages in PDF File: 58

Keywords: long run, predictability, aggregation, risk-return trade-off, Fisher hypothesis

JEL Classification: C51, E32, G12, G17

working papers series


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Date posted: December 5, 2012 ; Last revised: September 30, 2014

Suggested Citation

Bandi, Federico M. and Perron, Benoit and Tamoni, Andrea and Tebaldi, Claudio, The Scale of Predictability (September 30, 2014). Available at SSRN: http://ssrn.com/abstract=2184260 or http://dx.doi.org/10.2139/ssrn.2184260

Contact Information

Federico Maria Bandi
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-4352 (Phone)
Benoit Perron
University of Montreal - Department of Economics ( email )
C.P. 6128, succursale Centre-Ville
Montreal, Quebec H3C 3J7
Canada
514-343-2126 (Phone)
514-343-5831 (Fax)
Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )
2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada
University of Montreal - Center for Interuniversity Research in Econometrics ( email )
C.P. 6128, Succursale Centre-ville
Montreal, Quebec H3C 3J7
Canada
Andrea Tamoni (Contact Author)
London School of Economics & Political Science (LSE) ( email )
Houghton Street
London, WC2A 2AE
United Kingdom
02079557303 (Phone)
Claudio Tebaldi
Bocconi University, IGIER and CAREFIN ( email )
Via Roentgen 1
Milan, 20136
Italy

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