tay's as good as cay |
| |
| Institution: | 1. The Anderson School, UCLA, 110 Westwood Plaza, Los Angeles, CA 90095-1481, USA;2. The Wharton School, University of Pennsylvania, 2300 Steinberg Hall–Dietrich Hall, Philadelphia, PA 19104-6367, USA;1. Department of Finance, Asia University, Taichung, Taiwan;2. College of Business, Economics, and Computing, University of Wisconsin-Parkside, Kenosha, WI, USA;3. Department of Finance, National Chengchi University, Taipei, Taiwan;1. Department of Political Science, Yale University, New Haven, CT, USA;2. Department of Statistics, Yale University, New Haven, CT, USA;3. Department of Mathematics, Program in Applied Mathematics, Yale University, New Haven, CT, USA;4. Department of Mathematics, Yale University, New Haven, CT, USA;1. Department of Economics, Johns Hopkins University, Baltimore, MD, United States;2. DG Research, European Central Bank, 60640 Frankfurt am Main, Germany;3. Ministry of Finance, Tokyo, Japan |
| |
| Abstract: | The empirical evidence that the consumption–wealth ratio, cay, has strong in-sample predictive power for future stock returns has been interpreted as evidence that consumers take account of future investment opportunities in planning their consumption expenditures. In this paper we show that the predictive power of cay arises mainly from a “look-ahead bias” introduced by estimating the parameters of the cointegrating regression between consumption, assets, and labor income in-sample. When a similar regression is run, replacing the log of consumption with an inanimate variable, calendar time, the resulting residual, which we label tay, is shown to be able to forecast stock returns as well as, or better than, cay. In addition, both cay and tay lose their out-of-sample forecasting power when they are re-estimated every period with only available data. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
