What is the chance that the equity premium varies over time? evidence from predictive regressions

Missaka Warusawitharana () and Jessica A. Wachter ()

No 2009-26, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine the evidence on excess stock return predictability in a Bayesian setting in which the investor faces uncertainty about both the existence and strength of predictability. Departing from previous studies, we allow the regressor to be stochastic. When we apply our methods to the dividend-price ratio and payout yield, we find that even investors who are quite skeptical about the existence of predictability sharply modify their views in favor of predictability when confronted by the historical time series of returns and predictor variables. We find that taking into account the stochastic properties of the regressor has a substantial impact on the investor's inference about returns.

New Economics Papers: this item is included in nep-upt
Date: 2009
View list of references

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2009/200926/200926abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2009/200926/200926pap.pdf (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: http://EconPapers.repec.org/RePEc:fip:fedgfe:2009-26

Ordering information: This working paper can be ordered from
http://www.federalre ... /feds/fedsorder.html

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().