Topic: Economic Uncertainty and Predictability

Speaker: Federico M. Bandi, Professor in Economics and Finance, Carey Business School, Johns Hopkins University

Date: April 27th (Wednesday.)

Time: 2:30-4:00pm

Location: Building 4, Room 101

Language: English

Abstract:

We introduce a new stylized fact: the hump-shaped behavior of slopes and coefficients of determination as a function of the aggregation horizon when running (forward/backward) predictive regressions of future excess market returns onto past economic uncertainty. To justify this finding formally, we propose a novel framework in which predictability is a property of low-frequency components of both excess market returns and economic uncertainty. We show that predictability on these low-frequency components (i.e., scale-specific predictability) translates theoretically into hump-shaped patterns of slopes and coefficients of determination upon forward/backward regressions on the raw series. If past long-run uncertainty predicts future long-run returns, it also has to predict future long-run dividend growth. We report that it does so strongly.

About the speaker:

Federico M. Bandi holds the Professor in Economics and Finance at the Carey Business School, Johns Hopkins University. Previously, Professor Bandi spent ten years in the Booth School of Business, University of Chicago. He received a Ph.D. in Economics from the Yale University in 1999. Professor Bandi’s research interests include the financial econometrics, asset pricing, and market microstructure. He has articles published in the Journal of Econometrics, the Journal of Business and Economic Statistics, the Journal of Financial Economics, and the Review of Economic Studies, among others. Professor Bandi is also an editor of the Journal of Financial Econometrics, and Econometrisc Journal.