August 2007
Intermediate to advanced
304 pages
12h 22m
English
Content preview from Forecasting Expected Returns in the Financial Markets
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42 Forecasting Expected Returns in the Financial Markets
individuals hold this view and invest in a CAPM-type world, then represents the
equilibrium returns conditional upon the individuals’ common
beliefs.
2
Given A1 and A2, it is a straightforward result to show the following theorem.
Theorem 1: The pdf of Er given is given by
pdfEr ∼N
−1
+P
−1
P
−1
−1
+P
−1
q
−1
+P
−1
P
−1
Proof: See Appendix.
We emphasize that Theorem 1 is a result known ...
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