When are Stocks Less Volatile in the Long Run?

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State: Public
Version: Author's accepted manuscript
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Serval ID
serval:BIB_21A3D761DFAC
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
When are Stocks Less Volatile in the Long Run?
Journal
Journal of Financial and Quantitative Analysis
Author(s)
Jondeau Eric, Zhang Qunzi, Zhu Xiaoneng
ISSN
0022-1090
Publication state
In Press
Language
english
Abstract
Pastor and Stambaugh (2012) find that from a forward-looking perspective, stocks are more volatile in the long run than they are in the short run. We demonstrate that, when the nonnegative equity premium (NEP) condition is imposed on predictive regressions, stocks are in fact less volatile in the long run, even after taking estimation risk and uncertainties into account. The reason is that the NEP provides an additional parameter identification condition and prior information for future returns. Combined with the mean reversion of stock returns, this condition substantially reduces uncertainty on future returns and leads to lower long-run predictive variance.
Create date
26/05/2020 11:07
Last modification date
28/08/2020 6:08
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