Cujean, Julien; Hasler, Michael (2017). Why Does Return Predictability Concentrate in Bad Times? Journal of Finance, 72(6), pp. 2717-2758. Wiley 10.1111/jofi.12544
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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.
Item Type: |
Journal Article (Original Article) |
|---|---|
Division/Institute: |
03 Faculty of Business, Economics and Social Sciences > Department of Business Management > Institute of Financial Management |
UniBE Contributor: |
Cujean, Julien |
Subjects: |
600 Technology > 650 Management & public relations 300 Social sciences, sociology & anthropology > 330 Economics |
ISSN: |
0022-1082 |
Publisher: |
Wiley |
Language: |
English |
Submitter: |
Karin Dolder |
Date Deposited: |
17 Jul 2018 11:03 |
Last Modified: |
05 Dec 2022 15:14 |
Publisher DOI: |
10.1111/jofi.12544 |
BORIS DOI: |
10.7892/boris.117333 |
URI: |
https://boris.unibe.ch/id/eprint/117333 |
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