This is a summary of links featured on Quantocracy on Thursday, 01/19/2017. To see our most recent links, visit the Quant Mashup. Read on readers!
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Forecasting Returns with Shiller s CAPE and its 35-Year Moving Average [iMarketSignals]Shillers Cyclically Adjusted Price to Earnings Ratio (CAPE ratio) is at 27.8, which is 11.1 above its long-term mean of 16.7, signifying overvaluation of stocks and low forward returns. According to Jeremy Siegel it incorporates time-inconsistent data, and the failure to correct for changes in accounting methodology led to substantial under prediction of realized stock returns in recent
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Why Bayesian Variable Selection Doesn t Scale [Alex Chinco]Traders are constantly looking for variables that predict returns. If x is the only candidate variable traders are considering, then its easy to use the Bayesian information criterion to check whether x predicts returns. Previously, I showed that using the univariate version of the Bayesian information criterion means solving () \begin{align*} \hat{\beta} &= \arg \min_{\beta} \big\{ \,