A Recursive Modelling Approach to Predicting UK Stock Returns'
AbstractUsing a recursive modelling procedure which generalises existing methods for simulating investors' search in `real time' for a model that can forecast stock returns, the authors demonstrate the extent to which monthly stock returns in the UK were predictable during the period 1970-1993. Owing to a set of unique historical circumstances, UK stock returns were extremely volatile in 1974-5, and the authors discuss how to design a modelling approach which aims to account for this episode. Evidence is found of both long-term and short-term predictability in UK stock returns, which could have been exploited by investors to improve on the risk-return trade-off offered by a passive strategy in the market portfolio.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 9625.
Date of creation: 1996
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Web page: http://www.econ.cam.ac.uk/index.htm
Other versions of this item:
- Pesaran, M Hashem & Timmermann, Allan, 2000. "A Recursive Modelling Approach to Predicting UK Stock Returns," Economic Journal, Royal Economic Society, vol. 110(460), pages 159-91, January.
- Allan Timmermann & M. Hashem Pesaran, 1999. "A Recursive Modelling Approach to Predicting UK Stock Returns," FMG Discussion Papers dp322, Financial Markets Group.
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