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Predictive systems : living with imperfect predictors / Lubos Pastor, Robert F. Stambaugh

Author
Pástor, Luboš
Published
Cambridge, Mass. : National Bureau of Economic Research, [2008]
Copyright Date
©2008
Physical Description
57 pages : illustrations ; 22 cm.
Additional Creators
Stambaugh, Robert F., 1952- and National Bureau of Economic Research
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Summary
We develop a framework for estimating expected returns---a predictive system---that allows predictors to be imperfectly correlated with the conditional expected return. When predictors are imperfect, the estimated expected return depends on past returns in a manner that hinges on the correlation between unexpected returns and innovations in expected returns. We find empirically that prior beliefs about this correlation, which is most likely negative, substantially affect estimates of expected returns as well as various inferences about predictability, including assessments of a predictor's usefulness. Compared to standard predictive regressions, predictive systems deliver different and more precise estimates of expected returns.
Subject(s)
Note
"February 2008."
Bibliography Note
Includes bibliographical references (pages 54-57).
Other Forms
Also available in PDF from the NBER World Wide Web site (www.nber.org).
View MARC record | catkey: 4433023