In-sample and out-of-sample properties of international stock return dynamics conditional on equilibrium pricing factors

Helmut Herwartz and Morales-Arias, Leonardo

European Journal of Finance, 2009, vol. 15, issue 1, pages 1-28

Abstract: We conduct a comprehensive analysis of the in-sample and out-of-sample properties of stock return dynamics in 14 developed and 12 emerging markets. We start by formulating a theoretically founded asset-pricing model that decomposes log stock returns into equilibrium pricing factors (accounting and discount factors) and short-run (vector) autoregressive dynamics. Based on this model, we design both in-sample and out-of-sample panel modeling techniques to investigate international stock market returns at short and long horizons. Our findings show that (i) there is evidence of in-sample signaling from the equilibrium relations but this feature does not appear to translate into out-of-sample forecasting, (ii) a rolling window forecasting scheme can better approximate the distributional features of returns in comparison with a recursive method, (iii) forecasting with single-lagged equilibrium relationships does not play a uniformly significant role in anticipating returns, (iv) forecasting with a full model containing all lagged equilibrium relations can outperform both a random walk model and a VAR(1) model and (v) linear combinations of alternative forecasts reduce ex-ante uncertainty.

Keywords: international asset pricing; dynamic heterogenous panels; out-of-sample forecasting; forecast combination (search for similar items in EconPapers)
Date: 2009

Downloads: (external link)
http://www.informaworld.com/openurl?genre=article& ... 40C6AD35DC6213A474B5 (text/html)
Access to full text is restricted to subscribers.

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: http://EconPapers.repec.org/RePEc:taf:eurjfi:v:15:y:2009:i:1:p:1-28

Ordering information: This journal article can be ordered from
http://www.tandf.co.uk/journals/subscription.html

Access Statistics for this article

European Journal of Finance is edited by Chris Adcock

More articles in European Journal of Finance from Taylor and Francis Journals
Series data maintained by Christopher F. Baum ().