Assets Returns Volatility and Investment Horizon: The French Case

26 Pages Posted: 22 Apr 2009

See all articles by Frederique Bec

Frederique Bec

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); University of Cergy-Pontoise - THEMA

Christian Gollier

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2009

Abstract

This paper explores French assets returns predictability within a VAR setup. Using quarterly data from 1970Q4 to 2006Q4, it turns out that bonds, equities and bills returns are actually predictable. This feature implies that the investment horizon does indeed matter in the asset allocation. The VAR parameters estimates are then used to compute real returns conditional volatility across investment horizons. The results reveal the same kind of horizon effect as the one found in recent empirical studies using quarterly U.S. data. More specifically, the excess annualized standard deviation of French stocks returns with respect to bills and bonds returns decreases as the investment horizon grows. They suggest that long-horizon investors overstate the share of bonds in their portfolio choice when neglecting the horizon effect on risk of asset returns predictability.

Keywords: asset return predictability, investment horizon, vector autoregression

JEL Classification: G11

Suggested Citation

Bec, Frederique and Gollier, Christian, Assets Returns Volatility and Investment Horizon: The French Case (April 2009). CESifo Working Paper Series No. 2622. Available at SSRN: https://ssrn.com/abstract=1392168

Frederique Bec

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

University of Cergy-Pontoise - THEMA ( email )

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011
France

Christian Gollier (Contact Author)

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France
+33 61 12 86 30 (Phone)
+33 61 12 86 37 (Fax)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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