A Dynamic Model of Characteristic-Based Return Predictability
Event details
| Date | 24.03.2017 |
| Hour | 10:30 › 12:00 |
| Speaker | Aydogan ALTI (University of Texas) |
| Location | |
| Category | Conferences - Seminars |
We present a model where the “climate of disruptive innovation,” which determines the arrival rate of new projects and the exit rate of existing businesses, is a source of systematic risk that influences the returns of portfolios sorted on value, profitability, and asset growth. These characteristic-sorted portfolios generate abnormal returns along finite sample paths too frequently, relative to the rational benchmark, when investors exhibit biases in processing information about the disruption climate. In simulations of the calibrated model we quantify the ex-ante likelihood of observing the historical evidence on characteristic-based return predictability.
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