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Economic Significance of Predictable Variations in Stock Index Returns
Author(s) -
BREEN WILLIAM,
GLOSTEN LAWRENCE R.,
JAGANNATHAN RAVI
Publication year - 1989
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1989.tb02649.x
Subject(s) - portfolio , capitalization weighted index , variance (accounting) , econometrics , economics , rate of return on a portfolio , index (typography) , stock (firearms) , rate of return , financial economics , modern portfolio theory , stock market index , finance , geography , stock market , computer science , accounting , context (archaeology) , archaeology , world wide web
Knowledge of the one‐month interest rate is useful in forecasting the sign as well as the variance of the excess return on stocks. The services of a portfolio manager who makes use of the forecasting model to shift funds between bills and stocks would be worth an annual management fee of 2% of the value of the assets managed. During 1954:4 to 1986:12, the variance of monthly returns on the managed portfolio was about 60% of the variance of the returns on the value weighted index, whereas the average return was two basis points higher.