Simple Forecasts and Paradigm Shifts
AbstractWe 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.
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Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 62 (2007)
Issue (Month): 3 (06)
Other versions of this item:
- Harrison Hong & Jeremy C. Stein, 2003. "Simple Forecasts and Paradigm Shifts," NBER Working Papers 10013, National Bureau of Economic Research, Inc.
- Harrison Hong & Jeremy C. Stein, 2003. "Simple Forecasts and Paradigm Shifts," Harvard Institute of Economic Research Working Papers 2007, Harvard - Institute of Economic Research.
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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