Time-Varying Risk Premiums and the Output Gap

Conover, C. Mitchell

doi:10.2469/dig.v40.n1.2

Cited by 84 publications

(152 citation statements)

References 0 publications

Supporting

Mentioning

143

Contrasting

Order By: Relevance

“…To calculate the production gaps, I follow Cooper and Priestley (2009) and regress the natural logarithm of the industrial production index of the respective country on a linear and quadratic time trend, i.e.…”

Section: Construction Of Production Gapsmentioning

confidence: 99%

“…with ip t i the log industrial production index of country i at time t, trend denoting a time trend and the residual of this regression, ε t i , is the production gap as defined in Cooper and Priestley (2009). The production gap, ε t i , is henceforth denoted gap t i .…”

Section: Construction Of Production Gapsmentioning

confidence: 99%

“…A variety of studies have found that macroeconomic variables are informative about the future path of stock market returns (Lettau & Ludvigson, 2001;Lustig & Van Nieuwerburgh, 2005;Piazzesi, Schneider, & Tuzel, 2007;Santos & Veronesi, 2006). A recent example is Cooper and Priestley (2009) who show that the deviation of industrial production (production gap) or output from trend (output gap) predicts excess returns on the U.S. stock and bond market inand out-of-sample. A negative production gap today predicts high (excess) returns on stock markets in the next period.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

The impact of (global) business cycle risk on the German and British stock markets: Evidence from the first age of globalization

Nitschka

2013

Rev Financ Econ

View full text Add to dashboard Cite

In the period from 1880 to 1913, time‐varying German and British stock market returns are related to business cycle variables such as the deviation of industrial production from trend. Common British and German business cycle dynamics Granger cause stock returns and explain more than 20% of time variation in one‐year ahead stock market returns. The link between business cycle variables and stock returns is less pronounced in the modern era of financial globalization. A potential explanation for this finding is the fact that during the first globalization period stock indices were dominated by industrial companies and stock prices varied in line with dividends. In the modern era of globalization stock price dynamics predominantly reflect time‐varying risk premia.

show abstract

Section: Construction Of Production Gapsmentioning

confidence: 99%

Section: Construction Of Production Gapsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The impact of (global) business cycle risk on the German and British stock markets: Evidence from the first age of globalization

Nitschka

2013

Rev Financ Econ

View full text Add to dashboard Cite

show abstract

“…Output-based measures have also been found to be successful predictors of equity returns (e.g. Cooper and Priestley, 2009). Including these variables also allows us to assess whether macroeconomic conditions are causal (in a post hoc ergo propter hoc sense) for volatility or, by contrast, whether causality runs the other way, as emphasized in papers such as those by Fornari and Mele (2010) and Chauvet et al (2010).…”

Section: Macroeconomic and Financial Predictorsmentioning

confidence: 99%

A Comprehensive Look at Financial Volatility Prediction by Economic Variables

2011

View full text Add to dashboard Cite

We investigate whether return volatility is predictable by macroeconomic and financial variables to shed light on the economic drivers of financial volatility. Our approach is distinct owing to its comprehensiveness: First, we employ a data-rich forecast methodology to handle a large set of potential predictors in a Bayesian model-averaging approach and, second, we take a look at multiple asset classes (equities, foreign exchange, bonds and commodities) over long time spans. We find that proxies for credit risk and funding liquidity consistently show up as common predictors of volatility across asset classes. Variables capturing time-varying risk premia also perform well as predictors of volatility. While forecasts by macro-finance augmented models also achieve forecasting gains out-of-sample relative to autoregressive benchmarks, the performance varies across asset classes and over time.

show abstract

“…(ii) Information Variables I use seven information variables to proxy for the information set of investors. The choice of these information variables is motivated by prior studies such as Fama andFrench (1988 and1989), Solnik (1993), Hodrick and Zhang (2001), Cooper and Priestley (2009) among others. 6 The issue of whether stock returns are predictable is subject to much debate in the academic literature (e.g., Goyal and Welch, 2008).…”

Section: (I) Investment Universementioning

confidence: 99%

An Examination of Dynamic Trading Stategies in UK and US Stock Returns

Fletcher

2011

Business Fin & Account

View full text Add to dashboard Cite

This paper examines the performance benefits of using conditioning information in mean‐variance strategies in UK and US stock returns. The paper finds that after adjusting for trading costs, there are no significant performance benefits in using conditioning information in mean‐variance strategies. This result stems from the high turnover that is required to implement dynamic trading strategies. The paper does find that after adjusting for costs, that the unconditional approach of Ferson and Siegel (2001) significantly outperforms alternative approaches of using conditioning information in mean‐variance strategies in UK stock returns.

show abstract

Time-Varying Risk Premiums and the Output Gap

Cited by 84 publications

References 0 publications

The impact of (global) business cycle risk on the German and British stock markets: Evidence from the first age of globalization

The impact of (global) business cycle risk on the German and British stock markets: Evidence from the first age of globalization

A Comprehensive Look at Financial Volatility Prediction by Economic Variables

An Examination of Dynamic Trading Stategies in UK and US Stock Returns

Contact Info

Product

Resources

About