Assets returns volatility and investment horizon: The French case
AbstractThis paper explores French assets returns predictability within a VAR setup. Using quarterly data from 1970Q4 to 2006Q4, it turns out that bonds, equities and bills returns are actually predictable. This feature implies that the investment horizon does indeed matter in the asset allocation. The VAR parameters estimates are then used to compute real returns conditional volatility across investment horizons. The results reveal the same kind of horizon effect as the one found in recent empirical studies using quarterly U.S. data. More specifically, the annualized standard deviation of French stocks returns goes down from 22% for a 1-year horizon to only 2.8% for a 25-year investment horizon. They suggest that long-horizon investors overstate the share of bonds in their portfolio choice when neglecting the horizon effect on risk of asset returns predictability.
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Bibliographic InfoPaper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2008-10.
Date of creation: 2008
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Asset return predictability; Investment horizon; Vector Autoregression.;
Other versions of this item:
- Bec, Frédérique & Gollier, Christian, 2006. "Assets Returns Volatility and Investment Horizon: The French Case," IDEI Working Papers, Institut d'Ãconomie Industrielle (IDEI), Toulouse 467, Institut d'Économie Industrielle (IDEI), Toulouse, revised 30 Nov 2008.
- Frédérique Bec & Christian Gollier, 2009. "Assets Returns Volatility and Investment Horizon: The French Case," CESifo Working Paper Series 2622, CESifo Group Munich.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-04 (All new papers)
- NEP-FMK-2008-04-04 (Financial Markets)
- NEP-MAC-2008-04-04 (Macroeconomics)
- NEP-RMG-2008-04-04 (Risk Management)
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