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Rational and near-rational bubbles without drift

Lansing, Kevin J. - Federal Reserve Bank of San Francisco - 2007

This paper derives a general class of intrinsic rational bubble solutions in a standard Lucas-type asset pricing model. I show that the rational bubble component of the price-dividend ratio can evolve as a geometric random walk without drift. The volatility of bubble innovations depends...

Persistent link: https://www.econbiz.de/10005361472

Interpreting prediction market prices as probabilities

Wolfers, Justin; Zitzewitz, Eric - Federal Reserve Bank of San Francisco - 2006

While most empirical analysis of prediction markets treats prices of binary options as predictions of the probability of future events, Manski (2004) has recently argued that there is little existing theory supporting this practice. We provide relevant analytic foundations, describing sufficient...

Persistent link: https://www.econbiz.de/10005361501

Macroeconomic derivatives: an initial analysis of market-based macro forecasts, uncertainty, and risk

Gürkaynak, Refet S.; Wolfers, Justin - Federal Reserve Bank of San Francisco - 2005

In September 2002, a new market in "Economic Derivatives" was launched allowing traders to take positions on future values of several macroeconomic data releases. We provide an initial analysis of the prices of these options. We find that market-based measures of expectations are similar to...

Persistent link: https://www.econbiz.de/10005361509

Five open questions about prediction markets

Wolfers, Justin; Zitzewitz, Eric - Federal Reserve Bank of San Francisco - 2006

prove to be valuable tools in forecasting, decisionmaking and risk management--in both the public and private sectors. This …

Persistent link: https://www.econbiz.de/10005361516

Evaluating interest rate covariance models within a value-at-risk framework

Ferreira, Miguel A.; Lopez, Jose A. - Federal Reserve Bank of San Francisco - 2004

value-at-risk (VaR) framework, the relative performance of the covariance matrix forecasts depends greatly on the VaR … distributional assumption. Simple forecasts based just on weighted averages of past observations perform best using a VaR framework … commonly-used VaR models based on simple covariance matrix forecasts and distributional assumptions. …

Persistent link: https://www.econbiz.de/10010702127

A robust Hansen-Sargent prediction formula

Kasa, Kenneth - Federal Reserve Bank of San Francisco - 2000

This paper derives a formula for the optimal forecast of a discounted sum of future values of a random variable. This problem reflects a preference for robustness in the presence of (unstructured) model uncertainty. The paper shows that revisions of a robust forecast are more sensitive to new...

Persistent link: https://www.econbiz.de/10010702142

Lock-in of extrapolative expectations in an asset pricing model

Lansing, Kevin J. - Federal Reserve Bank of San Francisco - 2005

This paper examines an agent's choice of forecast method within a standard asset pricing model. To make a conditional forecast, a representative agent may choose one of the following: (1) a rational (or fundamentals-based) forecast that employs knowledge of the stochastic process governing...

Persistent link: https://www.econbiz.de/10010702147

Evaluating covariance matrix forecasts in a value-at-risk framework

Lopez, Jose A.; Walter, Christian A. - Federal Reserve Bank of San Francisco - 2000

matrix forecasts using standard statistical loss functions and a value-at-risk (VaR) framework. This framework consists of … hypothesis tests examining various properties of VaR models based on these forecasts as well as an evaluation using a regulatory … best under standard statistical loss functions. However, within the economic context of a VaR framework, the performance of …

Persistent link: https://www.econbiz.de/10010702240

Term premia and interest rate forecasts in affine models

Duffee, Gregory R. - Federal Reserve Bank of San Francisco - 2000

I find that the standard class of affine models produces poor forecasts of future changes in Treasury yields. Better forecasts are generated by assuming that yields follow random walks. The failure of these models is driven by one of their key features: the compensation that investors receive...

Persistent link: https://www.econbiz.de/10010702244

Evaluating interest rate covariance models within a value-at-risk framework

Ferreira, Miguel A.; Lopez, Jose A. - Federal Reserve Bank of San Francisco - 2004

Persistent link: https://www.econbiz.de/10005721447