State-Space vs. VAR Models for Stock Returns
نویسنده
چکیده
State-space or latent-variable models for stock prices specify a process for expected returns and expected and unexpected dividend growth, and then derive dividend yields and returns from a present value relations. They are a useful structure for understanding and interpreting forecasting relations. In this note, I connect state-space representations with their observable counterparts, and VAR/ARMA representations recovered by forecasting regressions.
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