Federico Bandi (with Andrea Tamoni)
- Carey Business School, Johns Hopkins University
Tuesday, January 16, 2018
Polo Santa Marta, Via Cantarane 24, Sala Vaona
Higher long-run economic uncertainty predicts higher future long-run excess market returns. Over a 10-year horizon, the joint use of long-run uncertainty and the dividend-to-price ratio leads to a predictive R2 around 80%, half of which is imputable to long-run uncertainty. This return predictability can only be reconciled with the ability of long-run uncertainty to predict future real dividend growth (with a positive sign), future real short-term rates (with a negative sign), or both. We show that higher long-run uncertainty forecasts lower inflation rates and, largely through this channel, higher real dividend growth.
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- Publication date
December 1, 2017