Maximizing equity market sector predictability in a Bayesian time-varying parameter model

Computational Statistics and Data Analysis

Volumn 52, Issue 6, 2008, Pages 3083-3106

  Johnson, Lorne D ^a   Sakoulis, Georgios ^a  

^a Numeric Investors LLC   (United States)

Author keywords

Asset pricing; Behavioral finance; Gibbs sampling; Kalman filter; Markov switching

Indexed keywords

KALMAN FILTERS; MARKOV PROCESSES; PARAMETER ESTIMATION; SWITCHING; TIME VARYING SYSTEMS;

ECONOMIC VARIABLES; ROLLING PARAMETER;

BAYESIAN NETWORKS;

EID: 39049099078     PISSN: 01679473     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.csda.2007.09.030     Document Type: Article

References (43)

1. Bai J., and Perron P. Estimating and testing linear models with multiple structural changes. Econometrica 66 (1998) 47-78
2. Bai, J., Perron, P., 2001. Computation and analysis of multiple structural change models. J. Appl. Econom. 18, 1-22.
3. Campbell J., and Shiller R.J. The dividend-price ratio and expectations of future dividends and discount factors. Rev. Financial Studi. 1 (1989) 195-228
4. Carter C.K., and Kohn R. On Gibbs sampling for state space models. Biometrika 81 (1994) 541-553
5. Chen N., Roll R., and Ross S.A. Economic forces and the stock market. J. Business 59 (1986) 383-403
6. Chib S. Marginal likelihood from the Gibbs output. J. Amer. Statist. Assoc. 90 (1995) 1313-1321
7. Cochrane J.H. A cross sectional test of an investment-based asset pricing model. J. Political Economy 104 (1996) 572-621
8. Fama E.F., and French K.R. The cross section of expected returns. J. Finance 47 (1992) 427-465
9. Fama E.F., and French K.R. Common risk factors in the returns on stocks and bonds. J. Financial Econom. 33 (1993) 3-56
10. Fama E.F., and French K.R. Multifactor explanations of asset pricing anomalies. J. Finance 51 (1996) 55-87
11. Fama E.F., and French K.R. The equity premium. J. Finance 52 (2002) 637-659
12. Fama E.F., and MacBeth J.D. Risk return and equilibrium: empirical tests. J. Political Economy 71 (1973) 607-636
13. Ferson W.E., and Harvey C.R. The variation of economic risk premiums. J. Political Economy 99 (1991) 385-415
14. Ferson W.E., and Harvey C.R. Conditioning variables and the cross section of stock returns. J. Finance 54 (1999) 1325-1360
15. French K.R., Schwert G.W., and Stambaugh R.F. Expected stock returns and volatility. J. Financial Econom. 19 (1987) 3-29
16. Garbade K. Two methods for examining the stability regression coefficients. J. Amer. Statist. Assoc. 72 (1977) 54-63
17. Giordani P., Kohn R., and van Dijk D. A unified approach to nonlinearity, outliers and structural breaks. J. Econometrics 137 (2007) 112-133
18. Geweke, J., 1992. Evaluating the accuracy of sampling-based approaches to the calculation of posterior moments. In: Proceedings of the Fourth Valencia International Meeting on Bayesian Satistics, Oxford University Press, pp. 169-194.
19. Gordon M. The Investment Financing and Valuation of the Corporation (1962), Irwin Homewood, IL
20. Hamilton, J.D., 2000. What is an oil shock. NBER Working Paper 7755.
21. Hansen B.E. Testing for parameter instability in linear models. J. Policy Model. 14 (1992) 517-533
22. Harvey, A.C., 1984. Forecasting, Structural Time Series Models and the Kalman Filter, Cambridge University Press, Cambridge.
23. Jaganathan R., and Wang Z. The conditional CAPM and the cross-section of expected returns. J. Finance 51 (1996) 3-53
24. Jegadeesh N., and Titman S. Returns to buying winners and selling losers: implications for stock market efficiency. J. Finance 48 (1993) 65-91
25. Jones C.M., and Kaul G. Oil and the stock markets. J. Finance 51 (1996) 463-491
26. Kan R., and Zhang C. Two-pass tests of asset pricing models with useless factors. J. Finance 54 (1999) 203-235
27. Kapetanios G. Variable selection in regression models using nonstandard optimisation of information criteria. Comput. Statist. Data Anal. 52 (2007) 4-15
28. Kass E., and Raftery A.E. Bayes factors. J. Amer. Statist. Assoc. 90 (1995) 773-795
29. Kim C.J. Sources of monetary growth uncertainty and economic activity: the time-varying-parameter model with heteroskedastic disturbances. Rev. Econom. Statist. 75 (1993) 483-492
30. Kim, C.J., Nelson, C., 1989. The time-varying parameter model for modeling changing conditional variance: the case of the lucas hypothesis. J. Business Econ. Statist. 7, 433-440.
31. Kim C.J., and Nelson C. State Space Models with Regime Switching (1999), MIT Press, Cambridge, MA
32. Lander J., Orphanides A., and Douvogiannis M. Earnings forecasts and the predictability of stock returns: evidence from trading the S&P. J. Portfolio Manage. 23 (1997) 24-35
33. Lee C.M.C., and Swaminathan B. Price momentum and trading volume. J. Finance 55 (2000) 2017-2069
34. Lo A.W., and MacKinlay C. Maximizing predictability in the stock and bond markets. Macroeconomic Dynamics 1 (1997) 102-134
35. Merton R.C. An intertemporal capital asset pricing model. Econometrica 41 (1973) 867-887
36. Neykov N., Filzmoser P., Dimova R., and Neytchev P. Robust fitting of mixtures using the trimmed likelihood estimator. Comput. Statist. Data Anal. 52 (2007) 578-595
37. Pesaran, H.M., Timmermann, A., 2002. Market timing and return prediction under model instability. J. Empirical Finance 9, 495-510.
38. Quevedo J.R., Bahamonde A., and Luaces O. A simple and efficient method for variable ranking according to their usefulness for learning. Comput. Statist. Data Anal. 52 (2007) 578-595
39. Roll R. A critique of the asset pricing theory's tests, part I: on past and potential testability of the theory. J. Financial Economics 4 (1977) 129-176
40. Sakoulis, G., Zivot, E., 2001. Time-variation and structural change in the forward discount: implications for the forward rate unbiasedness hypothesis. Unpublished manuscript, Department of Economics, University of Washington.
41. Schwert W.G., and Seguin P.J. Heteroskedasticity in stock returns. J. Finance 45 (1990) 1129-1155
42. Turner C.M., Startz R., and Nelson C.R. A Markov model of heteroskadasticity, risk and learning in the stock market. J. Financial Econom. 25 (1989) 3-22
43. Wu X. A conditional multifactor analysis of return momentum. J. Banking Finance 26 (2002) 1675-1696