Forecasting Financial Returns with a Structural Macroeconomic Model

Eric Jondeau and Michael Rockinger ()

No 16-13, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper investigates the ability of a fully structural macro-finance model to forecast long-term financial returns. We estimate a Dynamic Stochastic General Equilibrium (DSGE) model that describes the dynamics of the U.S. economy. The model includes government bond and stock market returns, which allows us to describe bond and stock risk premia. We first show that these risk premia are fundamentally related to other shocks in the economy. Second, the DSGE model reproduces the mean reversion in the term structure of risks for bond and stock returns. It also generates long-term forecasts of financial returns that outperform unrestricted VAR models.

Keywords: DSGE model; VAR model; Financial returns; Long-term forecast (search for similar items in EconPapers)
JEL-codes: C11 E44 E47 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2016-03
New Economics Papers: this item is included in nep-dge, nep-for and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://ssrn.com/abstract=2741141 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1613

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().