Portfolio Allocation for European Markets with Predictability and Parameter Uncertainty

Details

Serval ID
serval:BIB_88424D0904B8
Type
Report: a report published by a school or other institution, usually numbered within a series.
Publication sub-type
Working paper: Working papers contain results presented by the author. Working papers aim to stimulate discussions between scientists with interested parties, they can also be the basis to publish articles in specialized journals
Collection
Publications
Institution
Title
Portfolio Allocation for European Markets with Predictability and Parameter Uncertainty
Author(s)
Jondeau E., Rockinger M.
Institution details
Swiss Finance Institute
Issued date
2010
Language
english
Abstract
We implement a long-horizon static and dynamic portfolio allocation involving a risk-free and a risky asset. This model is calibrated at a quarterly frequency for ten European countries. We also use maximum-likelihood estimates and Bayesian estimates to account for parameter uncertainty. We find that for most European countries the dividend-price ratio and inflation have predictive power. For countries where returns are predictable, we demonstrate out-of-sample economic signi cance for the long-horizon allocation. Parameter uncertainty plays a second-order role, dominated by strong variation in the dynamic allocation itself induced by large variations in the state variables. The market timing appears economically relevant for many countries.
Keywords
Stock Returns, Predictability, Estimation risk, Portfolio Choice
Create date
19/10/2017 10:11
Last modification date
20/08/2019 14:47
Usage data