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Why so Glum? The Meese-Rogoff Methodology Meets the Stock Market

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Author Info
Flood, Robert P
Rose, Andrew K

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Abstract

This paper applies the Meese-Rogoff (1983a) methodology to the stock market. We compare the out-of-sample forecasting accuracy of various time-series and fundamentals-based models of aggregate stock prices. We stick as close as possible to the original Meese-Rogoff sample and methodology. Just as Meese and Rogoff found for the case of exchange rates, we find that a random walk model of stock prices performs as well as any estimated model at one to twelve month horizons, even though we base forecasts on actual future fundamentals of dividends and earnings. Using this metric and for this sample period, aggregate stock prices seem to be as difficult to model empirically as exchange rates.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6714.

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Date of creation: Feb 2008
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Handle: RePEc:cpr:ceprdp:6714

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Related research
Keywords: aggregate; dividend; earning; exchange; forecast; fundamental; growth; model; rate;

Find related papers by JEL classification:
F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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References listed on IDEAS
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  1. Richard Meese & Kenneth Rogoff, 1983. "The Out-of-Sample Failure of Empirical Exchange Rate Models: Sampling Error or Misspecification?," NBER Chapters, in: Exchange Rates and International Macroeconomics, pages 67-112 National Bureau of Economic Research, Inc. [Downloadable!]
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  2. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Valerie Cerra & Sweta Chaman Saxena, 2008. "The Monetary Model Strikes Back: Evidence from the World," IMF Working Papers 08/73, International Monetary Fund. [Downloadable!]
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