scholarly journals Present value model between prices and dividends with constant and time-varying expected returns: enterprise-level Brazilian stock market evidence from non-stationary panels

2012 ◽  
Vol 9 (4) ◽  
pp. 51-86
Author(s):  
Edward Bernard Bastiaan de Rivera y Rivera ◽  
Diógenes Manoel Leiva Martin ◽  
Emerson Fernandes Marçal ◽  
Leonardo Fernando Cruz Basso
Keyword(s):  
Stock Market ◽  
Expected Returns ◽  
Time Varying ◽  
Present Value ◽  
Present Value Model ◽  
Enterprise Level ◽  
Value Model

CONSUMPTION AND EXPECTED ASSET RETURNS: AN UNOBSERVED-COMPONENT APPROACH

2014 ◽  
Vol 19 (5) ◽  
pp. 1023-1044
Author(s):  
Narayan K. Kishor ◽  
Swati Kumari
Keyword(s):  
Growth Rate ◽  
Asset Returns ◽  
Expected Returns ◽  
Present Value ◽  
Consumption Growth ◽  
Present Value Model ◽  
Unobserved Component ◽  
Component Approach ◽  
The One ◽  
Value Model

This paper proposes an unobserved-component approach to estimate expected returns on household assets and expected growth rates of excess consumption (consumption in excess of labor income) within a present-value model of consumption. The present-value model of consumption implies that the excess-consumption–assets ratio can be expressed as a function of the present discounted value of expected excess-consumption growth rate and expected asset returns. Because expected returns and expected excess-consumption growth rate are unobserved variables, we use an unobserved-component approach to extract them from the observed history of realized returns and excess-consumption growth rate. Our results suggest that both filtered returns and filtered excess-consumption growth rate are significant and better predictors of realized returns and realized excess-consumption growth rate than the one obtained by the lagged excess-consumption–assets ratio.

Carry-Based Expected Returns for Strategic Asset Allocation

2019 ◽  
Keyword(s):  
Risk Factors ◽  
Asset Allocation ◽  
Expected Returns ◽  
Present Value ◽  
Expected Return ◽  
Strategic Asset Allocation ◽  
Present Value Model ◽  
Geographic Regions ◽  
Asset Classes ◽  
Value Model

In this article, the author investigates expected return forecasting methodologies and their application in an asset allocation context. Although present value model–related methods are popular in practice, little is known about their performance when used for asset allocation. An intuitive and traceable carry-based method is developed by the author and tested and benchmarked against competing alternatives. The results are evaluated from different perspectives, and the obtained returns are regressed on well-known risk factors. The proposed methodology outperformed other return forecasting variants on various metrics and generated significant alphas regardless of the weight determination approach used. The methodology can be extended to further asset classes and geographic regions and provides a framework for allocating assets strategically.

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