The Econometrics of Financial Markets

Campbell, John Y.; Lo, Andrew W.; MacKinlay, A. Craig

doi:10.1515/9781400830213

Cited by 3,829 publications

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“…13 For a more detailed discussion of this argument see Hendry (1995 Goyal and Welch (2003). The price-dividend ratio is generally found to forecast returns better in the second half of the twentieth century until the 1990s, as evidenced by Campbell et al (1997), Goyal and Welch (2003), Lewellen (2004) and Koijen and Van Nieuwerburgh (2011). Lettau and Van Nieuwerburgh (2008) considered a 30…”

Section: Resultsmentioning

confidence: 99%

Fractional Integration of the Price-Dividend Ratio in a Present-Value Model of Stock Prices

2014

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Section: Resultsmentioning

confidence: 99%

Fractional Integration of the Price-Dividend Ratio in a Present-Value Model of Stock Prices

2014

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“…The slope factor explains around 2% of the weekly variation in stock returns. Campbell, Lo, and MacKinlay (1997) document that weekly stock returns are negatively autocorrelated in the modern period. We add the lagged excess return of the CRSP value-weighted index in column (2).…”

Section: B Baselinementioning

confidence: 99%

Monetary Policy and the Stock Market: Time-Series Evidence

Neuhierl

Weber

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We construct a slope factor from changes in federal funds futures of different horizons. Slope predicts stock returns at the weekly frequency: faster monetary policy easing positively predicts excess returns. Investors can achieve increases in weekly Sharpe ratios of 20% conditioning on the slope factor. The tone of speeches by the FOMC chair correlates with the slope factor. Slope predicts changes in future interest rates and forecast revisions of professional forecasters. Our findings show that the path of future interest rates matters for asset prices, and monetary policy affects asset prices throughout the year and not only at FOMC meetings. Terms of use: Documents in EconStor mayJEL-Codes: E310, E430, E440, E520, E580, G120.Keywords: return predictability, policy speeches, expected returns, macro news. Andreas Neuhierl I IntroductionThe FOMC will, of course, carefully deliberate about when to begin the process of removing policy accommodation. But the significance of this decision should not be overemphasized, because what matters for financial conditions and the broader economy is the entire expected path of short-term interest rates and not the precise timing of the first rate increase.Janet L. Yellen (2015) ...policy deliberations happen on a rather continuous basis. Kevin Warsh (2015)The main objectives of the Federal Reserve (Fed) under its dual mandate are price stability and maximum employment. The Fed funds rate is the Fed's main conventional policy tool to achieve those goals. But whereas real consumption, investment, and GDP only respond with a lag to changes in the target rate, asset prices respond directly and immediately.Yellen's quote, however, highlights that asset prices might react not only to changes in short-term interest rates, but also to changes in expectations about the speed of monetary policy loosening and tightening. Previous governor Warsh, instead, stresses that monetary policy decisions happen continuously rather than only on eight scheduled Federal Open Market Committee (FOMC) meetings that are the focus of a large event study literature.We use weekly changes in the one-month and three-month federal funds futuresimplied rates to test for the effect of changes in the future path of monetary policy on asset prices throughout the year.1 Specifically, we argue that changes in one-month futures, f f t,1 , affect all future target rates, and we can interpret it as a level factor.Changes in the three-month futures, f f t,3 ...

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“…Under ideal circumstance RV t is proved to converge to the integrated volatility of (8) in the limit of n → ∞. However in the real financial markets there exist several types of bias such as microstructure noise [16], and thus in the presence of the bias the convergence of RV t to the integrated volatility is not guaranteed. Let us assume that the log-price observed in financial markets is contaminated with independent noise [17], i.e.…”

Section: Realized Volatilitymentioning

confidence: 99%

Empirical study of the GARCH model with rational errors

Chen

Takaishi

2013

J. Phys.: Conf. Ser.

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We use the GARCH model with a fat-tailed error distribution described by a rational function and apply it for the stock price data on the Tokyo Stock Exchange. To determine the model parameters we perform the Bayesian inference to the model. The Bayesian inference is implemented by the Metropolis-Hastings algorithm with an adaptive multidimensional Student's t-proposal density. In order to compare the model with the GARCH model with the standard normal errors we calculate information criterions: AIC and DIC, and find that both criterions favor the GARCH model with a rational error distribution. We also calculate the accuracy of the volatility by using the realized volatility and find that a good accuracy is obtained for the GARCH model with a rational error distribution. Thus we conclude that the GARCH model with a rational error distribution is superior to the GARCH model with the normal errors and it can be used as an alternative GARCH model to those with other fat-tailed distributions.

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The Econometrics of Financial Markets

Cited by 3,829 publications

References 0 publications

Fractional Integration of the Price-Dividend Ratio in a Present-Value Model of Stock Prices

Fractional Integration of the Price-Dividend Ratio in a Present-Value Model of Stock Prices

Monetary Policy and the Stock Market: Time-Series Evidence

Empirical study of the GARCH model with rational errors

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