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Payout yield, risk, and mispricing: A Bayesian analysis

Shanken, Jay and Tamayo, Ane (2012) Payout yield, risk, and mispricing: A Bayesian analysis. Journal of Financial Economics, 105 (1). pp. 131-152. ISSN 0304-405X

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Abstract

We develop a simple parametric model in which hypotheses about predictability, mispricing, and the risk-return tradeoff can be evaluated simultaneously, while allowing for time variation in both risk and expected return. Most of the return predictability based on aggregate payout yield is unrelated to market risk. We consider a range of Bayesian prior beliefs about the risk-return tradeoff and the extent to which predictability is driven by mispricing. The impact of these beliefs on an investor's certainty-equivalent return when choosing between a market index and riskless T-bills is economically significant, in both ex ante and out-of-sample analyses.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-financ...
Additional Information: © 2012 Elsevier
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C11 - Bayesian Analysis
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Sets: Departments > Accounting
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 28 Nov 2012 14:45
URL: http://eprints.lse.ac.uk/46382/

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