Search Results
Journal Article
Volatile firms, stable economy
Journal Article
Foreign exchange rates are predictable!
Journal Article
Stock market returns, volatility, and future output
In this article, Hui Guo shows that, if stock volatility follows an AR(1) process, stock market returns relate positively to past volatility but relate negatively to contemporaneous volatility in Merton?s (1973) Intertemporal Capital Asset Pricing Model. The model helps explain the recent finding that stock market volatility drives out returns in forecasting real gross domestic product growth because the predictive power of returns is hampered by their positive correlation with past volatility. If the positive relation between returns and past volatility is controlled for, however, the author ...
Journal Article
Stock market volatility: reading the meter
Journal Article
A simple model of limited stock market participation
Stocks have outperformed government bonds, on average, by a large margin in historical data. However, most U.S. households do not own stocks, either directly or indirectly. Also, stocks are highly concentrated in the hands of relatively few wealthy people. In this article, Hui Guo describes some aspects of stock ownership. He then uses an overlapping-generations model to help explain why stock market participation is so limited and discusses some implications of limited stock market participation.
Journal Article
Does stock market volatility forecast returns?
Working Paper
Aggregate idiosyncratic volatility in G7 countries
The paper analyzes average idiosyncratic volatility in G7 countries. We find that idiosyncratic volatility is highly correlated across countries and there is a significant Granger causality from the U.S. to the other countries and vice versa. Consistent with U.S. data, when combined with stock market volatility, idiosyncratic volatility has significant predictive power for stock market returns and the value premium in many other G7 countries. Moreover, in U.S. data, idiosyncratic volatility has explanatory power for stock returns very similar to that of value premium volatility in both ...
Working Paper
International transmission of inflation among G-7 countries: a data-determined VAR analysis
We investigate the international transmission of inflation among G-7 countries using a data-determined vector autoregression analysis, as advocated by Swanson and Granger (1997). Over the period 1973 to 2003, we find that U.S. innovations have a large effect on inflation in the other countries, although they are not always the dominant international factor. Similarly, shocks to some other countries also have a statistically and economically significant influence on U.S. inflation. Moreover, our evidence indicates that U.S. inflation has become less vulnerable to foreign shocks since the early ...
Working Paper
Foreign exchange volatility is priced in equities
This paper finds that standard asset pricing models fail to explain the significantly positive delta hedging errors from writing options on foreign exchange futures. Foreign exchange volatility does influence stock returns, however. The volatility of the JPY/USD exchange rate predicts the time series of stock returns and is priced in the cross-section of stock returns. Foreign exchange volatility risk might be priced because of its relation to foreign exchange level risk. ; Earlier title: Is foreign exchange delta hedging risk priced?
Working Paper
On the real-time forecasting ability of the consumption-wealth ratio
Lettau and Ludvigson (2001a) show that the consumption-wealth ratio-the error term from the cointegration relation among consumption, net worth, and labor income-forecasts stock market returns out of sample. In this paper, we reexamine their evidence using real-time data. Consistent with the early authors, we find that consumption and labor income data are subject to substantial revisions, which reflect (1) incorporating new information or methodologies and (2) reducing noise. Consequently, in contrast with the results obtained from the current vintage, the out-of-sample forecasting power of ...