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| Author: | Campbell, J. Y. |
| Title: | Measuring the persistence of expected returns |
| Journal: | American Economic Review
1990 : MAY, VOL. 80:2, p. 43-47 |
| Index terms: | RATIONAL EXPECTATIONS ASSETS FINANCIAL ANALYSIS RATE OF RETURN STOCK MARKETS |
| Language: | eng |
| Abstract: | Many recent research projects have documented the fact that rational expectations of real returns on long-term financial assets move systematically through time. An estimation is given of the persistence of expected returns in the USA stock market, and the estimation is used to account for the variability of unexpected stock returns. A standard regression model is applied which forecasts monthly stock returns with a modest RxR statistic of less than 7 p.c. This model was incorporated into a vector autoregression that describes the time evolution of the forecasting variables, and expected stock return. The effect on the stock price of an innovation in the expected return is calculated. |
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