Why Does Return Predictability Concentrate in Bad Times?
We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors' opinions polariz...
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| Veröffentlicht in: | The Journal of finance (New York) 2017-12, Vol.72 (6), p.2717-2757 |
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| container_end_page | 2757 |
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| container_issue | 6 |
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| container_title | The Journal of finance (New York) |
| container_volume | 72 |
| creator | CUJEAN, JULIEN HASLER, MICHAEL |
| description | We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors' opinions polarize. Disagreement thus spikes in bad times, causing returns to react to past news. This phenomenon creates a positive relation between disagreement and future returns. It also generates time-series momentum, which strengthens in bad times, increases with disagreement, and crashes after sharp market rebounds. We provide empirical support for these new predictions. |
| doi_str_mv | 10.1111/jofi.12544 |
| format | Article |
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| identifier | ISSN: 0022-1082 |
| ispartof | The Journal of finance (New York), 2017-12, Vol.72 (6), p.2717-2757 |
| issn | 0022-1082 1540-6261 |
| language | eng |
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| source | Wiley Online Library - AutoHoldings Journals; JSTOR |
| subjects | Disputes Economic conditions Economic impact Equilibrium Forecasting Investments News Portfolio performance Recessions Regression analysis Uncertainty |
| title | Why Does Return Predictability Concentrate in Bad Times? |
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