Multi-Variable Regression Analysis For the Prediction of Equity Returns Over 10 Year Periods
by Arjun Singh Jaswal
Abstract
The use of 5 variables is examined in order to forecast ex ante the total return from holding equities over 10 year periods. The 5 variables are a moving average of Campbell and Shiller’s P/E ratio, Robert B. Barsky and J. Bradford De Long’s log price predictor, a function of James Tobin’s q, the rate of change of GDP over 30 years and the rate of change of cash flow over 10 years. The significance of these variables is explained by considering them individually, simultaneously and finally under the architecture suggested by David Hirshleifer.
Professor Edward Tower, Faculty Advisor
JEL Codes: C3, E22
Assessing the Performance of Actively Managed Global Funds
by Luyuan Fan
Abstract
It has been widely debated whether managed funds outperform their index counterparts. Many scholars have carried out empirical testing for U.S. managed funds, but few have examined global funds. This study compares the total returns and risk-adjusted returns for 29 largest global funds with that of a basket of Vanguard indexes over 5 two-year periods from January 1997 to December 2006. We discover that the global funds outperform the basket of indexes before expenses. Also, the global funds outperform the indexes by an increasing amount in later periods than in earlier ones, implying accumulated experience and improved fund management skills of fund managers over time. Moreover, the average of the return differentials in favor of global funds in five periods is lower than the return differential over the entire 10-year period, indicating fund managers’ superior style-picking skills. After expenses, the indexes win on average, because most global funds have high expense ratios (of up to 2 %.) However, low cost global funds, such as the Vanguard Global Equity, make an exception.
Professor Edward Tower, Faculty Advisor
JEL Codes: E22,
