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See detailA Note on Stein’s Overreaction Puzzle
Lin, Yuehao; Lehnert, Thorsten UL

in Decisions in Economics and Finance (2020), 43(1), 269-276

Recently, Christoffersen et al. (2013) argue that the overreaction puzzle of Stein (1989) can be explained by a variance-dependent pricing kernel. In this note, we challenge this view. Our theoretical ... [more ▼]

Recently, Christoffersen et al. (2013) argue that the overreaction puzzle of Stein (1989) can be explained by a variance-dependent pricing kernel. In this note, we challenge this view. Our theoretical results are in line with their argument that the variance under risk-neutral measure is more persistent than the variance under physical measure due to a negative variance risk premium. But our results do not support their argument that the more persistent variance is able to qualitatively explain Stein’s findings. We show theoretically that the persistence of the volatility cannot amplify the movements of long-term variance to short-term fluctuations in variance, and, therefore, conclude that Stein’s overreaction puzzle is still unsolved. [less ▲]

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See detailThe predictive Power of Fund Ratings with a novel approach using uncertainty measures to analyzing risk
Terraza, Virginie UL; Toque, Carole UL

in Decisions in Economics and Finance (2009), 32(2), 149-160

Using two approaches to panel data, Granger causality analysis with semi-asymptotic tests, and a structural approach based on entropies measured on sequences of multi-period ratings and returns, we ... [more ▼]

Using two approaches to panel data, Granger causality analysis with semi-asymptotic tests, and a structural approach based on entropies measured on sequences of multi-period ratings and returns, we specify the relationship between a fund’s performance and both Morningstar and Europerformance ratings. We conclude on the Europerformance agency forecasting ability for the Luxembourg funds, and the Morningstar agency for the French funds. Indeed, we find two groups of funds depending on their domiciliation and appropriated rating. The results of this paper have implications for the management of fund portfolios, and the structural approach, more robust to our data, must be a first process for forecast models on the basis of similar funds, minor uncertainty or risk measure, and appropriated rating. [less ▲]

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