Advanced Search
MyIDEAS: Login to save this paper or follow this series

Return Predictability, Model Uncertainty, and Robust Investment

Contents:

Author Info

  • Manuel Lukas

    ()
    (Aarhus University and CREATES)

Registered author(s):

    Abstract

    Stock return predictability is subject to great uncertainty. In this paper we use the model confidence set approach to quantify uncertainty about expected utility from investment, accounting for potential return predictability. For monthly US data and six representative return prediction models, we find that confidence sets are very wide, change significantly with the predictor variables, and frequently include expected utilities for which the investor prefers not to invest. The latter motivates a robust investment strategy maximizing the minimal element of the confidence set. The robust investor allocates a much lower share of wealth to stocks compared to a standard investor.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: ftp://ftp.econ.au.dk/creates/rp/11/rp11_42.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2011-42.

    as in new window
    Length: 31
    Date of creation: 26 Nov 2011
    Date of revision:
    Handle: RePEc:aah:create:2011-42

    Contact details of provider:
    Web page: http://www.econ.au.dk/afn/

    Related research

    Keywords: Return predictability; Model uncertainty; Model confidence set; Portfolio choice; Loss function;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:aah:create:2011-42. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.