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Note that some papers available for download are
preliminary and subject to substantial revision. Comments are welcome. GAUSS or MATLAB program files
are available for many papers. International Stock Return Predictability: What is the Role of the United States? with Jack K. Strauss and Guofu Zhou, November 2009 PDF Abstract: We present significant evidence of out-of-sample equity premium predictability for a host of industrialized countries over the postwar period. There are important differences, however, in the nature of equity premium predictability between the United States and other developed countries. Taken collectively, U.S. economic variables are significant out-of-sample predictors of the U.S. equity premium, while lagged international stock returns have no predictive power. In contrast, lagged international stock returns--especially lagged U.S. returns--substantially outperform economic variables as out-of-sample equity premium predictors for non-U.S. countries. The evidence thus points to a leading role for the United States with respect to international return predictability and is consistent with information frictions in international equity markets. The predictability patterns are enhanced during economic downturns, linking return predictability to business-cycle fluctuations and the diffusion of news on macroeconomic fundamentals across countries. The leading role of the United States stands out during the recent global financial crisis: lagged U.S. stock returns deliver especially sizable gains for forecasting the monthly equity premium in other countries, evidenced by out-of-sample R2 statistics of 10% or greater, more than triple the postwar average. Slides for September 2009 LSU Department of Economics Seminar PDF Common Fluctuations in OECD Budget Balances, with Christopher J. Neely, October 2009 PDF Abstract: We analyze comovements in four measures of budget surpluses for 18 OECD countries for 1981-2008 with a dynamic latent factor model. The world factor in national budget surpluses declines substantially in the 1980s, rises in the early 1990s to a peak in 2000, before declining again in the most recent period. This world factor explains a substantial portion of the variability in budget surpluses across countries. World factors in national output gaps, dividend-price ratios, and military spending significantly explain variation in the world budget surplus factor. The significant relationship between national output gaps and OECD measures of cyclically adjusted budget surpluses suggests that such cyclical measures inadequately adjust for the international business cycle. Sizable fluctuations in idiosyncratic components of national budget surpluses often readily relate to well known “unusual” country circumstances. Slides for August 2009 Federal Reserve Bank of St. Louis Seminar PDF Efficiency Implications of the Intra-Week Evolution of Market Prices: An Analysis of Sequential NFL Betting Lines in New York City, with Thomas W. Miller, July 2009 PDF Abstract: We study the intra-week evolution of price efficiency in the 1972 NFL betting market in New York City. Our unique data set provides weekly observations for three sequential betting lines: (i) an “Outlaw Line”' set by a single agent at the beginning of the week; (ii) Tuesday's “Opening Line” shaped by bets from a group of 8-10 agents; and (iii) a game-time “Closing Line” formed by subsequent bets placed by the wider public. We analyze the information content and efficiency of these three betting lines as more agents participate in the market and as more information becomes available. Forecast encompassing tests clearly show that information content increases as the betting line evolves from the Outlaw to the Opening to the Closing. Using a sequential regression framework, however, we uncover significant evidence of pricing inefficiencies related to various measures of sentiment. Betting strategies based on exploiting these inefficiencies generate economically and statistically significant profits. In addition, actual bets made by a number of “professional” gamblers appear profitable, pointing to the existence of superior analysts in the market. Overall, our results show that while betting lines evolved in a manner consistent with a degree of efficient information processing, significant inefficiencies emerged in the price-setting process. International Comovements in Inflation Rates and Country Characteristics, with Christopher J. Neely, September 2009 PDF Abstract: Common shocks, similarities in central bank reaction functions, and international trade potentially produce common components in international inflation rates. This paper characterizes such links in international inflation rates with a dynamic latent factor model that decomposes 65 national inflation rates into world, regional, and idiosyncratic components. The world and regional components account for 34% and 16%, respectively, of annual inflation variability on average across countries. That is, international influences together explain half of inflation variability. The importance of the world and regional components, however, differs substantially across countries. Economic policy choices and development measures strongly explain the cross-section variation in the relative importance of international influences. A subsample analysis reveals that the importance of the world component for national inflation rates is relatively stable over time, although it does become markedly more important for a number of Asian economies since 1979. How Predictable are Components of the Aggregate Market Portfolio? with Aiguo Kong, Jack K. Strauss, Jun Tu, and Guofu Zhou, August 2009 PDF [featured in the 22 June 2009 issue of Citigroup Global Markets Academic Research Digest] Abstract: We analyze return predictability for components of the aggregate market, including portfolios sorted on industry, size, and book-to-market. Considering a variety of economic variables and lagged industry returns as predictors, both in-sample and out-of-sample tests highlight substantial differences in return predictability across components. Among industry portfolios, construction, textiles, apparel, furniture, printing, automobiles, and manufacturing exhibit the most predictability, while portfolios of small-cap and high book-to-market firms also display considerable predictability. Three key findings provide economic explanations for component predictability: (i) component predictability is markedly more evident during recessions, linking predictability to business-cycle fluctuations; (ii) based on a novel out-of-sample decomposition, time-varying macroeconomic risk premiums captured by the conditional CAPM and conditional Fama-French 3-factor model largely account for component predictability; (iii) industry concentration and market capitalization significantly explain differences in return predictability across industries, consistent with the information-flow frictions emphasized by Hong, Torous, and Valkanov (2007). We further show that predictability can be exploited to improve portfolio performance for component-rotation investment strategies. Slides for 2009 FMA Annual Meetings PDF Out-of-Sample Equity Premium Prediction: Combination Forecasts and Links to the Real Economy, with Jack K. Strauss and Guofu Zhou, April 2009, forthcoming in the Review of Financial Studies PDF RFS 2008 impact factor: 2.640 Note: This is a substantially revised version of two earlier papers, “Out-of-Sample Equity Premium Prediction: Consistently Beating the Historical Average” and “Diversification Also Works for Forecasting the Equity Premium: Consistently Outperforming the Historical Average” Multi-Period Portfolio Choice and the Intertemporal Hedging Demands for Stocks and Bonds: International Evidence, with Mark E. Wohar, Journal of International Money and Finance, Vol. 28, No. 3, April 2009, pp. 427-453 JIMF 2008 impact factor: 0.860; 5-year impact factor: 1.186 Data Appendix PDF Appendix Containing VAR Estimation Results PDF Data and GAUSS program files ZIP Differences in Housing Price Forecastability Across U.S. States, with Jack K. Strauss, International Journal of Forecasting, Vol. 25, No. 2, April-June 2009, pp. 351-372 IJF 2008 impact factor: 1.685; 5-year impact factor: 1.596 States and the Business Cycle, with Michael T. Owyang and Howard J. Wall, Journal of Urban Economics, Vol. 65, No. 2, March 2009, pp. 181-194 [version available as Federal Reserve Bank of St. Louis Working Paper 2007-050B] JUE 2008 impact factor: 1.460; 5-year impact factor: 1.837 Real Interest Rate Persistence: Evidence and Implications, with Christopher J. Neely, Federal Reserve Bank of Data and GAUSS program files ZIP Forecasting Stock Return Volatility in the Presence of Structural Breaks, with Jack K. Strauss and Mark E. Wohar, in Forecasting in the Presence of Structural Breaks and Model Uncertainty, David E. Rapach and Mark E. Wohar (eds.), Vol. 3 of Frontiers of Economics and Globalization, May 2008, Bingley, United Kingdom: Emerald, pp. 381-416 Amazon link Structural Breaks and GARCH Models of Exchange Rate Volatility, with Jack K. Strauss, Journal of Applied Econometrics, Vol. 23, No. 1, January-February 2008, pp. 65-90 [third most downloaded JAE article in 2008] Appendix of Additional Results PDF Data and GAUSS program files ZIP Forecasting U.S. Employment Growth Using Forecast Combining Methods, with Jack K. Strauss, Journal of Forecasting, Vol. 27, No. 1, January 2008, pp. 75-93 Appendix of Additional Results PDF Forecasting Real Housing Price Growth in the Eighth District States, with Jack K. Strauss, Federal Reserve Bank of St. Louis Regional Economic Development, Vol. 3, No. 2, November 2007, pp. 33-42 PDF Data and GAUSS program files ZIP Bagging or Combining (or Both)? An Analysis Based on Forecasting U.S. Employment Growth, with Jack K. Strauss, September 2007, forthcoming in Econometric Reviews PDF ER 2008 impact factor: 1.220 Data and GAUSS program files ZIP Forecasting the Recent Behavior of U.S. Business Fixed Investment Spending: An Analysis of Competing Models, with Mark E. Wohar, Journal of Forecasting, Vol. 26, No. 1, January 2007, pp. 33-51 Data and GAUSS program files and additional results ZIP The Long-Run Relationship Between Consumption and Housing Wealth in the Eighth District States, with Jack K. Strauss, Federal Reserve Bank of St. Louis Regional Economic Development, Vol. 2, No. 2, October 2006, pp. 140-147 PDF Structural Breaks and Predictive Regressions Models of Aggregate U.S. Stock Returns, with Mark E. Wohar, Journal of Financial Econometrics, Vol. 4, No. 2, Spring 2006, pp. 238-274 Data and GAUSS program files ZIP The Out-of-Sample Forecasting Performance of Nonlinear Models of Real Exchange Rate Behavior, with Mark E. Wohar, International Journal of Forecasting, Vol. 22, No. 2, April-June 2006, pp. 341-361 IJF 2008 impact factor: 1.685; 5-year impact factor: 1.596 Data and GAUSS program files ZIP In-Sample vs. Out-of-Sample Tests of Stock Return Predictability in the Context of Data Mining, with Mark E. Wohar, Journal of Empirical Finance, Vol. 13, No. 2, March 2006, pp. 231-247 Additional Tables PDF Data Appendix PDF Data and GAUSS program files ZIP Forecasting Employment Growth in Regime Changes in International Real Interest Rates: Are They a Monetary Phenomenon? with Mark E. Wohar, Journal of Money, Credit, and Banking, Vol. 37, No. 5, October 2005, pp. 887-906 JMCB 2008 impact factor: 1.422 Data and GAUSS program files ZIP Valuation Ratios and Long-Horizon Stock Price Predictability, with Mark E. Wohar, Journal of Applied Econometrics, Vol. 20, No. 3, March-April 2005, pp. 327-344 Data and GAUSS program files ZIP Macro Variables and International Stock Return Predictability, with Mark E. Wohar and Jesper Rangvid, IJF 2008 impact factor: 1.685; 5-year impact factor: 1.596 Data and GAUSS program files ZIP The Persistence in International Real Interest Rates, with Mark E. Wohar, International Journal of Finance and Economics, Vol. 9, No. 4, October 2004, pp. 339-346 Data and GAUSS program files ZIP Financial Variables and the Simulated Out-of-Sample Forecastability of EI 2008 impact factor: 0.759 Data and GAUSS program files ZIP Testing the Monetary Model of Exchange Rate Determination: A Closer Look at Panels, with Mark E. Wohar, Journal of International Money and Finance, Vol. 23, No. 6, October 2004, pp. 841-865 JIMF 2008 impact factor: 0.860; 5-year impact factor: 1.186 Are Real Interest Rates Really Nonstationary? New Evidence from Tests with Good Size and Power, with Christian E. Weber, Journal of Macroeconomics, Vol. 26, No. 3, September 2004, pp. 409-430 JMacro 2008 impact factor: 0.556; 5-year impact factor: 0.702 Data and GAUSS program files ZIP International Evidence on the Long-Run Impact of Inflation, Journal of Money, Credit, and Banking, Vol. 35, No. 1 , February 2003, pp. 23-48 JMCB 2008 impact factor: 1.422 Data and GAUSS program files ZIP Testing the Monetary Model of Exchange Rate Determination: New Evidence From a Century of Data, with Mark E. Wohar, Journal of International Economics, Vol. 58, No. 2, December 2002, pp. 359-385 JIE 2008 impact factor: 1.724; 5-year impact factor: 2.749 Data and GAUSS program files ZIP The Long-Run Relationship Between Inflation and Real Stock Prices, Journal of Macroeconomics, Vol. 24, No. 3, September 2002, pp. 331-351 JMacro 2008 impact factor: 0.556; 5-year impact factor: 0.702 Data and GAUSS program files ZIP Are Real GDP Levels Nonstationary? Evidence from Panel Data Tests, Southern Economic Journal, Vol. 68, No. 3, January 2002, pp. 473-495 Data and GAUSS program files ZIP Macro Shocks and Real Stock Prices, Journal of Economics and Business, Vol. 53, No. 1, January-February 2001, pp. 5-26 Data and GAUSS program files ZIP Monetary Shocks and Real Exchange Rate Hysteresis: Evidence from the G-7 Countries, Review of International Economics, Vol. 9, No. 2, May 2001, pp. 356-371 Macro Shocks and Fluctuations, Journal of Economics and Business, Vol. 50, No. 1, January-February 1998, pp. 23-38 Monetary Shocks and Relative Farm Prices: A Re-examination, with Alan G. Isaac, American Journal of Agricultural Economics, Vol. 79, No. 4, November 1997, pp. 1332-1339 AJAE 2008 impact factor: 0.967 |
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Disclaimer: pages.slu.edu is a service of Saint Louis University, Saint Louis University does not control, monitor or guarantee the information contained in these sites. For more information » |