Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets

48 Pages Posted: 28 Dec 2006 Last revised: 19 Jan 2009

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Robert J. Hodrick

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: July 1991

Abstract

The paper characterizes predictable components in excess rates of returns on major equity and foreign exchange markets using lagged excess returns, dividend yields, and forward premiums as instruments. Vector autoregressive techniques demonstrate one-step-ahead predictability and provide implied long-horizon statistics. We estimate latent variable models as constrained counterparts to the VARs. The predictability of returns is related to asset pricing models by examining the volatility bounds on intertemporal marginal rates of substitution.

Suggested Citation

Bekaert, Geert and Hodrick, Robert J., Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets (July 1991). NBER Working Paper No. w3790. Available at SSRN: https://ssrn.com/abstract=473945

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Robert J. Hodrick

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

365 Fifth Avenue, 5th Floor
New York, NY 10016-4309
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
68
rank
327,064
Abstract Views
1,519
PlumX Metrics