A Recursive Modelling Approach to Predicting UK Stock Returns'

Mohammad Pesaran and Allan Timmermann

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Using a recursive modelling procedure which generalises existing methods for simulating investors' search in `real time' for a model that can forecast stock returns, the authors demonstrate the extent to which monthly stock returns in the UK were predictable during the period 1970-1993. Owing to a set of unique historical circumstances, UK stock returns were extremely volatile in 1974-5, and the authors discuss how to design a modelling approach which aims to account for this episode. Evidence is found of both long-term and short-term predictability in UK stock returns, which could have been exploited by investors to improve on the risk-return trade-off offered by a passive strategy in the market portfolio.

Date: 1996
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: A Recursive Modelling Approach to Predicting UK Stock Returns (2000)
Working Paper: A Recursive Modelling Approach to Predicting UK Stock Returns (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:9625

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