A Recursive Modelling Approach to Predicting UK Stock Returns

Posted: 31 Jul 2000

See all articles by M. Hashem Pesaran

M. Hashem Pesaran

University of Southern California - Department of Economics

Allan Timmermann

UCSD ; Centre for Economic Policy Research (CEPR)

Abstract

This paper applies an extended and generalised version of the recursive modelling strategy developed in Pesaran and Timmermann (1995) to the UK stock market. The focus of the analysis is to simulate investors' search in 'real time' for a model that can forecast stock returns. We find evidence of predictability in UK stock returns which could have been exploited by investors to improve on the risk-return trade-off offered by a passive strategy in the market portfolio. Alternative interpretations of this finding are briefly discussed.

JEL Classification: G12, G14

Suggested Citation

Pesaran, M. Hashem and Timmermann, Allan, A Recursive Modelling Approach to Predicting UK Stock Returns. Available at SSRN: https://ssrn.com/abstract=233425

M. Hashem Pesaran (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

Allan Timmermann

UCSD ( email )

9500 Gilman Drive
La Jolla, CA 92093-0553
United States
858-534-0894 (Phone)

HOME PAGE: http://rady.ucsd.edu/people/faculty/timmermann/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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