Predictive systems
Subtitle: living with imperfect predictors
By: Lubos Pastor, Robert F. Stambaugh.
Contributors: Robert F. Stambaugh.; Lubos, Pastor.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 12814; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12814.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "The standard regression approach to modeling return predictability seems too restrictive in one way but too lax in another.  A predictive regression models expected returns as an exact linear function of a given set of predictors but does not exploit the likely economic property that innovations in expected returns are negatively correlated with unexpected returns.  We develop an alternative framework - a predictive system - that accommodates imperfect predictors and beliefs about that negative correlation.  In this framework, the predictive ability of imperfect predictors is supplemented by information in lagged returns as well as lags of the predictors.  Compared to predictive regressions, predictive systems deliver different and substantially more precise estimates of expected returns as well as different assessments of a given predictor's usefulness"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 3/22/2007.

Includes bibliographical references.

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