Research Seminar Andrea Tamoni (LSE)

On Thursday, June 5 at 4.40 pm, room 3402 (Shabolovka str. 26) ICEF held the Research Seminar.
Speaker: Andrea Tamoni (LSE)
Theme: «Implications of Returns Predictability across Horizons for Asset Pricing Models»

On Thursday, June 5 at 4.40  pm International College of Economics and Finance held the Research Seminar.

Speaker:  Andrea Tamoni (LSE)
Theme: «Implications of Returns Predictability across Horizons for Asset Pricing Models»
Venue: Shabolovka st., 26, room 3402

Abstract: We analyze predictors-based variance bounds, i.e bounds on the variance of the stochastic discount factors (SDFs) that price a given set of returns conditional on the information contained in a vector of return predictors. For an asset pricing model identified by its state variables, information structure and model SDF, we supply a sufficient condition under which our predictors-based bounds constitute legitimate lower bounds on the variance of the SDF of the model. Using our predictors-based bounds we analyze discount factors produced by the long-run risk, the habit and the rare disasters models. We document that consumption-based asset pricing models such as long-run risk and habit models do not produce SDFs volatile enough at the one-year horizon. When we look at long-horizons our evidence shows that it is the habit model, not the long-run risk model, that satisfies our bounds. The rare disasters model satisfies our predictors-based bounds at each horizon. As a consequence, the investment horizon and the use of conditioning information emerge as fundamental ingredients that permit either to set models apart, or to select the common behavior among apparently different models.

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