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Article

Short-Term Exuberance and Long-Term Stability: A Simultaneous Optimization of Stock Return Predictions for Short and Long Horizons

1
Faculty of Actuarial Science and Insurance, Cass Business School, University of London, 106 Bunhill Row, London EC1Y 8TZ, UK
2
Department of Economics, University of Graz, Universitätsstraße 15/F4, 8010 Graz, Austria
*
Author to whom correspondence should be addressed.
Academic Editor: José María Sarabia
Mathematics 2021, 9(6), 620; https://doi.org/10.3390/math9060620
Received: 2 March 2021 / Revised: 10 March 2021 / Accepted: 11 March 2021 / Published: 15 March 2021
The fundamental interest of investors in econometric modeling for excess stock returns usually focuses either on short- or long-term predictions to individually reduce the investment risk. In this paper, we present a new and simple model that contemporaneously accounts for short- and long-term predictions. By combining the different horizons, we exploit the lower long-term variance to further reduce the short-term variance, which is susceptible to speculative exuberance. As a consequence, the long-term pension-saver avoids an over-conservative portfolio with implied potential upside reductions given their optimal risk appetite. Different combinations of short and long horizons as well as definitions of excess returns, for example, concerning the traditional short-term interest rate but also the inflation, are easily accommodated in our model. View Full-Text
Keywords: finance; investment analysis; stock returns; cross-validation; variation reduction finance; investment analysis; stock returns; cross-validation; variation reduction
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MDPI and ACS Style

Kyriakou, I.; Mousavi, P.; Nielsen, J.P.; Scholz, M. Short-Term Exuberance and Long-Term Stability: A Simultaneous Optimization of Stock Return Predictions for Short and Long Horizons. Mathematics 2021, 9, 620. https://doi.org/10.3390/math9060620

AMA Style

Kyriakou I, Mousavi P, Nielsen JP, Scholz M. Short-Term Exuberance and Long-Term Stability: A Simultaneous Optimization of Stock Return Predictions for Short and Long Horizons. Mathematics. 2021; 9(6):620. https://doi.org/10.3390/math9060620

Chicago/Turabian Style

Kyriakou, Ioannis, Parastoo Mousavi, Jens P. Nielsen, and Michael Scholz. 2021. "Short-Term Exuberance and Long-Term Stability: A Simultaneous Optimization of Stock Return Predictions for Short and Long Horizons" Mathematics 9, no. 6: 620. https://doi.org/10.3390/math9060620

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