Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/127072
Authors: 
Chang, Kuang-Liang
Chen, Nan-Kuang
Leung, Charles Ka Yui
Year of Publication: 
2015
Series/Report no.: 
ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 932
Abstract: 
This paper revisits the relationships among macroeconomic variables and asset returns. Based on recent developments in econometrics, we categorize competing models of asset returns into different "Equivalence Predictive Power Classes" (EPPC). During the pre-crisis period (1975-2005), some models that emphasize imperfect capital markets outperform an AR(1) for the forecast of housing returns. After 2006, a model that includes both an external finance premium (EFP) and the TED spread "learns and adjusts" faster than competing models. Models that encompass GDP experience a significant decay in predictive power. We also demonstrate that a simulation-based approach is complementary to the EPPC methodology.
Subjects: 
monetary policy
financial market variables
Uni-variate Single-regime Benchmark
Markov Regime Switching
forecasting
JEL: 
E50
G00
R00
Document Type: 
Working Paper

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