Abel's (1998) intertemporal asset pricing model implies that the autocorrelation pattern in expected returns reflects that observed in output growth rates. Consequently, by using the observed autocorrelation properties of macroeconomic data, we are able to provide univariate tests with power to...

Statistical inference in predictive regressions depends critically on the stochastic properties of the posited explanatory variable, in particular, its order of integration. However, confidence intervals for the largest autoregressive root of explanatory variables commonly used in predictive...

If yields are assumed to have an exact unit-root, it has previously been shown that the rational expectations hypothesis of the term structure (REHTS) has been rejected by single-equation tests. However, small deviations from exact unit-root produce substantial changes in the small sample...

We investigate whether the cap rate, that is, the rent-price ratio in commercial real estate incorporates information about future expected real estate returns and future growth in rents. Relying on transactions data spanning several years across fifty-three metropolitan areas in the U.S., we...

We introduce Mixed Data Sampling (henceforth MIDAS) regression models. The regressions involve time series data sampled at different frequencies. Technically speaking MIDAS models specify conditional expectations as a distributed lag of regressors recorded at some higher sampling frequencies. We...

Suppose that the equity premium is forecasted by dividend yields. Even if such a relationship does exist, there is so much noise in the equity premium that estimation, inference and forecasting cannot be carried out using the faint signal coming from the dividend yields. For analyzing...

We propose a novel approach to optimizing portfolios with large numbers of assets. We model directly the portfolio weight in each asset as a function of the asset’s characteristics. The coefficients of this function are found by optimizing the investor’s average utility of the...

We find that the average excess return in the stock market is higher under Democratic than Republican presidents– a difference of 9 percent per year for the value-weighted portfolio and 16 percent for the equal-weighted portfolio. The difference is economically and statistically...

We analyze several ways of conducting long-horizon regressions, taken from the empirical literature. Asymptotic arguments are used to show that, in all cases, the t-statistics do not converge to well-defined distributions, thus explaining the tendency of long-horizon regressions to find...