Simple Forecasts and Paradigm Shifts
We study the asset pricing implications of learning in an environment in which the true model of the world is a multivariate one, but agents update only over the class of simple univariate models. Thus, if a particular simple model does a poor job of forecasting over a period of time, it is discarded in favor of an alternative simple model. The theory yields a number of distinctive predictions for stock returns, generating forecastable variation in the magnitude of the value-glamour return differential, in volatility, and in the skewness of returns. We validate several of these predictions empirically. Copyright 2007 by The American Finance Association.
Year of publication: |
2007
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Authors: | HONG, HARRISON ; STEIN, JEREMY C. ; YU, JIALIN |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 62.2007, 3, p. 1207-1242
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Publisher: |
American Finance Association - AFA |
Saved in:
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