We analyze the properties of various methods for bias-correcting parameter estimates in both stationary and non-stationary vector autoregressive models. First, we show that two analytical bias formulas from the existing literature are in fact identical. Next, based on a detailed simulation...

Vector-autoregressive models are used to decompose housing returns in 18 OECD countries into cash flow (rent) news and discount rate (return) news over the period 1970–2011. For the majority of countries news about future returns is the main driver, and both real interest rates and risk-premia...

We conduct an econometric analysis of bubbles in housing markets in the OECD area, using quarterly OECD data for 18 countries from 1970 to 2013. We pay special attention to the explosive nature of bubbles and use econometric methods that explicitly allow for explosiveness. First, we apply the...

We study in detail the log-linear return approximation introduced by Campbell and Shiller (1988a). First, we derive an upper bound for the mean approximation error, given stationarity of the log dividend-price ratio. Next, we simulate various rational bubbles that have explosive conditional...

Within a VAR based intertemporal asset allocation model we explore the effects on return predictability and optimal asset allocation of adjusting VAR parameter estimates for small-sample bias. We apply a simple and easy-to-use analytical bias formula instead of bootstrap or Monte Carlo...

We analyze the pitfalls involved in VAR based return decompositions. First, we show that recent criticism of such decompositions is misplaced and builds on invalid VAR models and erroneous interpretations. Second, we derive the requirements needed for VAR decompositions to be valid. A crucial...

Based on Chen and Zhao's (2009) criticism of VAR based return decompositions, we explain in detail the various limitations and pitfalls involved in such decompositions. First, we show that Chen and Zhao's interpretation of their excess bond return decomposition is wrong: the residual component...

We conduct a comprehensive international study of predictability in housing markets using the rent-price ratio as a predictive variable. On data from 18 OECD countries we generally find return predictability in accordance with time-varying risk-premia, but we also document two puzzles. First,...

We study in detail the log-linear return approximation introduced by Campbell and Shiller (1988a). First, we derive an upper bound for the mean approximation error, given stationarity of the log dividendprice ratio. Next, we simulate various rational bubbles which have explosive conditional...

We extend the VAR based intertemporal asset allocation approach from Campbell et al. (2003) to the case where the VAR parameter estimates are adjusted for small-sample bias. We apply the analytical bias formula from Pope (1990) using both Campbell et al.'s dataset, and an extended dataset with...