Bulls, bears and excess volatility: can currency intervention help?

Long-run Bulls and Bears∗

A central challenge in asset pricing is the weak connection between stock returns and observable economic fundamentals. We provide evidence that this connection is stronger than previously thought. We use a modified version of the Bry-Boschan algorithm to identify long-run swings in the stock market. We call these swings long-run bull and bear episodes. We find that there is a high correlation ...

Bulls, Bears and Market Sheep*

Much has been written about the efficiency of markets in general and of the market for equities in particular, and of its implications for the more-orless random-like behavior of stock prices. The conventional argument is that opportunistic trading by rational investors will arbitrage away any gains that can be made from predictable patterns; what is left are the perturbations in asset values c...

Bulls, Bears, and Retirement Behavior

Can currency-based risk factors help forecast exchange rates?

This paper examines the time series predictability of bilateral exchange rates from linear factormodels that utilize the unconditional and conditional expectations of three currencybased risk factors. Exploiting a comprehensive set of statistical criteria, we find that all versions of the linear factor models largely fail to outperform the benchmark random walk with drift model for the out-of-s...

Learning and Excess Volatility

We introduce adaptive learning behavior into a general equilibrium lifecycle economy with capital accumulation. Agents form forecasts of the rate of return to capital assets using least squares autoregressions on past data. We show that, in contrast to the perfect foresight dynamics, the dynamical system under learning possesses equilibria characterized by persistent excess volatility in return...