Cardiff University | Prifysgol Caerdydd ORCA
Online Research @ Cardiff 
WelshClear Cookie - decide language by browser settings

A formula for the economic value of return predictability

Taylor, Nick James 2013. A formula for the economic value of return predictability. The European Journal of Finance 19 (1) , pp. 37-53. 10.1080/1351847X.2011.640340

Full text not available from this repository.

Abstract

This paper provides a formula for a commonly used measure of the economic value of asset return predictability. In doing this, we find that there is a strong connection between this measure and a traditional statistical measure of predictive quality. In particular, we demonstrate that the maximum amount an investor is willing to pay for predictability knowledge (the performance fee) is a simple transformation of the R 2 statistic associated with the predictor equation. We illustrate the use of these results with an application to the Ibbotson US bond and equity data (and a set of pertinent predictors), and via application to the results published in Fama and French [1988. Dividend yields and expected stock returns. Journal of Financial Economics 22: 3–25], Balvers, Cosimano, and McDonald [1990. Predicting stock returns in an efficient market. Journal of Finance 45: 1109–28], Lettau and Ludvigson [2001. Consumption, aggregate wealth and expected stock returns. Journal of Finance 56: 815–49], and Santa-Clara and Yan [2010. Crashes, volatility, and the equity premium: Lessons from S&P 500 options. Review of Economics and Statistics 92: 435–51].

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Uncontrolled Keywords: economic value; predictability; performance fees.
Additional Information: Available online: 06 Feb 2012
Publisher: Taylor and Francis
ISSN: 1351-847X
Last Modified: 25 Jun 2017 02:40
URI: https://orca.cardiff.ac.uk/id/eprint/17731

Citation Data

Cited 1 time in Scopus. View in Scopus. Powered By Scopus® Data

Actions (repository staff only)

Edit Item Edit Item