Long-run regression models using the trailing earnings over price ratio to predict future returns suggested by Campbell and Shiller (1988, 2001) work quite well. However, in this note we show that this variable might result in a downward biased proxy for expected future returns. Instead we...

This paper presents theoretical models and their empirical results for the return and variance dynamics of German stocks. A factor structure is used in order to allow for a parsimonious modeling of the first two moments of returns. Dynamic factor models with GARCH dynamics (GARCH(1,1)-M,...

The question of long-run predictability in the aggregate US stock market is still unsettled. This is due to the lack of a robust method to judge the statistical significance of long-run regressions under the maintained hypothesis. By developing a spectral theory of long-run regressions with both...