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Journal of Finance Vol. 44 No. 5 1989

Economic Significance of Predictable Variations in Stock Index Returns

William Breen; Lawrence R. Glosten; Ravi Jagannathan1,2,3,4

1 Tohoku University · 2 Kellogg's (Canada) · 3 WSFS Financial Corporation (United States) · 4 Columbia University

Abstract

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.

DOI
10.1111/j.1540-6261.1989.tb02649.x
Volume
44
Issue
5
Pages
1177-1189
Language
en
Sources
crossref bibtex:phds-export.bib openalex

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