nep-rmg New Economics Papers
on Risk Management
Issue of 2005‒01‒16
three papers chosen by
Stan Miles
York University

  1. Weak and Semi-Strong Form Stock Return Predictability Revisited By Wayne E. Ferson; Andrea Heuson; Tie Su
  2. Five Years of Continuous-time Random Walks in Econophysics By Enrico Scalas
  3. Money Illusion in the Stock Market: The Modigliani-Cohn Hypothesis By Randolph B. Cohen; Christopher Polk; Tuomo Vuolteenaho

  1. By: Wayne E. Ferson; Andrea Heuson; Tie Su
    Abstract: This paper makes indirect inference about the time-variation in expected stock returns by comparing unconditional sample variances to estimates of expected conditional variances. The evidence reveals more predictability as more information is used, and no evidence that predictability has diminished in recent years. Semi-strong form evidence suggests that time-variation in expected returns remains economically important.
    JEL: G1 G11 G12 G14
    Date: 2005–01
  2. By: Enrico Scalas (Universita' del Piemonte Orientale, Alessandria, Italy)
    Abstract: This paper is a short review on the application of continuos-time random walks to Econophysics in the last five years.
    Keywords: Duration; Continuous-time random walk; Fractional calculus; Statistical finance
    JEL: G
    Date: 2005–01–11
  3. By: Randolph B. Cohen; Christopher Polk; Tuomo Vuolteenaho
    Abstract: Modigliani and Cohn [1979] hypothesize that the stock market suffers from money illusion, discounting real cash flows at nominal discount rates. While previous research has focused on the pricing of the aggregate stock market relative to Treasury bills, the money-illusion hypothesis also has implications for the pricing of risky stocks relative to safe stocks. Simultaneously examining the pricing of Treasury bills, safe stocks, and risky stocks allows us to distinguish money illusion from any change in the attitudes of investors towards risk. Our empirical resuts support the hypothesis that the stock market suffers from money illusion.
    JEL: G12 G14 N22
    Date: 2005–01

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