Survey Forecasts and the Time-Varying Second Moments of Stock and Bond Returns

93 Pages Posted: 15 Mar 2012 Last revised: 26 Jul 2016

See all articles by Pierluigi Balduzzi

Pierluigi Balduzzi

Boston College - Carroll School of Management

Chunhua Lan

University of New Brunswick - Fredericton; Financial Research Network (FIRN)

Date Written: February 11, 2014

Abstract

What are the economic determinants of the level and volatility of the second moments of stock and bond returns? We address this central question via the Campbell-Shiller (Campbell and Shiller, 1988) decomposition, with news constructed using survey forecasts. Risk premium news explains most of the unconditional second moments of returns and 86% of the pre- to post-1997 change in the stock-bond covariance. Also, the second moments of risk premium news explain most of the variance of the second moments of returns. In turn, the second moments of fundamental news explain large portions of the variance of the second moments of risk premium news.

Keywords: Campbell-Shiller decomposition, time-varying second moments, stock-bond covariance

JEL Classification: G12

Suggested Citation

Balduzzi, Pierluigi and Lan, Chunhua, Survey Forecasts and the Time-Varying Second Moments of Stock and Bond Returns (February 11, 2014). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2022274 or http://dx.doi.org/10.2139/ssrn.2022274

Pierluigi Balduzzi (Contact Author)

Boston College - Carroll School of Management ( email )

Department of Finance
140 Commonwealth Avenue - Fulton Hall 438
Chestnut Hill, MA 02467
United States
617-552-3976 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www.bc.edu/bc_org/avp/csom/faculty/

Chunhua Lan

University of New Brunswick - Fredericton ( email )

Bailey Drive
P.O. Box 4400
Fredericton NB E3B 5A3
Canada

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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