CS代写 1 On the Board ñLecture 6

1 On the Board ñLecture 6
VAR(1) math: where
Expected returns:
zt =0 +1zt1 +”t;

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0 rt 1 A:
Et (rt+1) = e01 (0 + 1zt) ;
e11 0 00:
Et (yt+1) = e03 (0 + 1zt) :
Then, with = V ar (zt),
V ar (Et (rt+1)) = e011 01e1:
One-period ahead expected return series given by:
Et (rt+1) = e01 (0 + 1zt) ;
for t = 1; :::; T . Letís consider many quarter ahead. Note that
  E(zt)=0 +1E(zt);  = (I31)10:
Then deÖne z~t  zt . Thus:
z~t+1 = 1z~t + “t+1:
Now, forecast j-periods ahead:
E t ( z~ t + j ) =  j1 z~ t :
in general, ei as a 1 in the iíth element, zero otherwise. Thus:
Note that:
Et(rt+j) = e01+j1z~t; Et(yt+j) = e03+j1z~t:
Et(rt+j)=e01(0 +1Et(zt+j1)): 1

From the homework:
0 rt+201 1 Et (rt+20) = 0:038 + (0:049 1:451 1:050) Et @ DPt+201 A
yt+201 Approximately, the DP ratio is an AR(1) in the data:
DPt+1 = 0:002 + 0:94  DPt + “dp;t+1
So, need 0:9419 to make forecast Et (DPt+19). Since DP is very persistent (0.94
indicates this), the e§ect of DP on returns is long-lasting.

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