We extend theories and empirics in Chen, Hong,and Stein (2002) by allowing investors subject to market sentiment to hold a biased belief in aggregate. With a dynamic multiple-asset model, we show that the ownership breadth-return relationship can be either positive or negative depending on the relative strength of two offsetting forces: (1) variation in disagreement and (2) variation in sentime...

This paper focuses on the performance of various GARCH models in terms of their ability of delivering volatility forecasts for stock return data. Volatility forecasts obtained from a variety of mean and variance specifications in GARCH models are compared to a proxy of actual volatility calculated using daily data. In-sample tests suggest that a regression of volatility estimates on actual vola...

Using factor based approaches, we investigate a return and volatility forecasting procedure that exploits all the available information by still keeping the econometric framework at considerable size. Our findings demonstrate that factor based approaches provide substantial gains when predicting the sign of the excess returns and state of the volatility separately as well as jointly. A striking...

Lettau and Ludvigson (2001) find that the consumption-wealth ratio (cay) constructed from revised data is a strong predictor of stock market returns. This paper shows that its out-ofsample forecasting power becomes substantially weaker if cay is estimated using information available at the time of forecast. The difference, which mainly reflects periodic revisions in consumption and labor income...

Over the recent past, stylized facts have not yielded a synthesis regarding the predictability of returns for alternative investment assets such as hedge funds. Recent studies on alternative asset return predictability have added to the ambiguity. These studies suggest that classification prediction methods may dominate more traditional return-level prediction methodology. This paper examines t...

Recent studies have documented that various factors such as discretionary accounting accruals, underwriter reputation, venture capital backing, and firm size will affect the long-run performance of IPOs. However, it is not clear whether the return predictability of these attributes are the manifestation of one phenomenon, or independent results. In this study, we use univariate and multivariate...

Recently it was shown that financial time series are not completely random process but exhibit long-term or short-term dependences, which offer promises for predictability. However, we do not clearly understand the potential relationship between serial structure and predictability. This paper proposed a framework to magnify the correlations and regularities contained in financial time series th...

This paper examines optimal international portfolio choice when equity market linkages increase during periods of distress and investors are averse to disappointing outcomes. I propose a model that captures the joint effect of these two phenomena and show that it leads to a first-order effect on the optimal portfolios. Even during correlated downturns, international diversification is still hig...