Risk, Mispricing, and Asset Allocation: Conditioning on Dividend Yield / Jay Shanken, Ane Tamayo.

Format:

Book

Author/Creator:

Shanken, Jay.

Contributor:

National Bureau of Economic Research.

Tamayo, Ane.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8666.

NBER working paper series no. w8666

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Risk, Mispricing, and Asset Allocation

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

In the asset pricing literature, time-variation in market expected excess return captured by financial ratios like dividend yield is typically viewed as a reflection of either changing risk, related to the business cycle, or irrational mispricing. Extending the work on asset allocation and dividend yield by Kandel and Stambaugh (1996) to accommodate variation in risk as well as expected return, we develop Bayesian methods to examine the interaction between the data and an investor's initial beliefs about the sources of return predictability. Although results vary with the subperiod examined, different views on the relative importance of these factors can have important implications for asset allocation between a stock index and a riskless asset. In general, however, the simple risk/return model of Merton (1980) explains very little of the yield-related return predictability observed.

Notes:

Print version record

December 2001.