Cochrane Paper

Question 1

The Table above is from an article discussed in class. The gray box hides the numbers obtained from a regression. Based on the results of this article, which of the following statements is correct? (a) The sequence of parameters 1 ; 2 :::5 is monotonically decreasing. (b) The sequence of parameters 1 ; 2 :::5 is jointly statistically insignicant. (c) The sequence of parameters 1 ; 2 :::5 is such that: 0 < 1 < 2 < 3 and 3 > 4 > 5 . (d) The best predictor of future bond returns is the factor associated with 2 . (e) None of the above

Answer 1

c or e

Question 2

What is XXX, YYY and ZZZ

Answer 2

XXX = expected returns; Y Y Y = expected dividend growth; ZZZ = rational bubbles.

Question 3

What is box 1, box 2, box 3 and box 4.

Answer 3

Box 1 = Large stocks; Box 2 = Small stocks; Box 3 = Value; Box 4 = Growth