#2004-027C "Aggregate Idiosyncratic Volatility in G7 Countries"
by Hui Guo, and Robert Savickas
November 2004
Revised January 2007

We argue that changes in average idiosyncratic volatility provide a proxy for changes in the investment opportunity set, and this proxy is closely related to the book-to-market factor. More...

FORTHCOMING: Review of Financial Studies

#2003-043A "On the Cross Section of Conditionally Expected Stock Returns"
by Hui Guo, and Robert Savickas
December 2003

In this paper, we use macrovariables advocated by recent authors to make out-of-sample forecast for returns on individual stocks and then sort stocks equally into ten portfolios on this proxy of conditionally expected returns. The average returns increase monotonically from the first decile (stocks with the lowest expected returns) to the tenth decile (stocks with the highest expected returns), and the difference between the tenth and first deciles is a significant 4.8 percent per year. More...

#2003-028B "Idiosyncratic Volatility, Stock Market Volatility, and Expected Stock Returns"
by Hui Guo, and Robert Savickas
September 2003
Revised July 2005

We find that the value-weighted idiosyncratic stock volatility and aggregate stock market volatility jointly exhibit strong predictive power for excess stock market returns. The stock market risk-return relation is found to be positive, as stipulated by the CAPM; however, idiosyncratic volatility is negatively related to future stock market returns. More...

PUBLISHED: Journal of Business and Economic Statistics, January 2006, 24(1), pp. 43-56

#2003-025A "Does Idiosyncratic Risk Matter: Another Look"
by Hui Guo, and Robert Savickas
August 2003

We show that the equal-weighted average stock volatility analyzed by Goyal and Santa-Clara (GS, 2003) forecasts stock returns because of its co-movements with stock market volatility. Moreover, contrary to the positive relation hypothesized by GS and many others, we find that the value-weighted average stock volatility is negatively related to future stock returns when combined with stock market volatility More...

#2003-012C "On the Risk-Return Relation in International Stock Markets"
by Hui Guo
May 2003
Revised May 2006

We investigate the risk-return relation in international stock markets using realized variance constructed from MSCI (Morgan Stanley Capital International) daily stock price indices. In contrast with CAPM, realized variance by itself provides negligible information about future excess stock market returns; however, we uncover a positive and significant risk-return tradeoff in many countries after controlling for the (U.S.) consumption-wealth ratio. More...

PUBLISHED: Financial Review, November 2006, 41(4), pp. 565-87

#2003-007B "On the Real-Time Forecasting Ability of the Consumption-Wealth Ratio"
by Hui Guo
April 2003
Revised October 2003

Lettau and Ludvigson (2001a) show that the consumption-wealth ratio—the error term from the cointegration relation among consumption, net worth, and labor income—forecasts stock market returns out of sample. In this paper, we reexamine their evidence using real-time data. More...

#2002-013C "Time-Varying Risk Premia and The Cross Section of Stock Returns"
by Hui Guo
April 2002
Revised May 2005

This paper develops and estimates a heteroskedastic variant of Campbell's (1993) ICAPM, in which risk factors include a stock market return and variables forecasting stock market returns or variance. Our main innovation is the use of a new set of predictive variables, which not only have superior forecasting abilities for stock returns and variance, but also are theoretically motivated. More...

PUBLISHED: Journal of Banking and Finance, July 2006, 30(7), pp. 2087-2107

#2002-008C "On the Out-of-Sample Predictability of Stock Market Returns"
by Hui Guo
June 2002
Revised October 2003

In this paper, we provide new evidence of the out-of-sample predictability of stock returns. In particular, we find that the consumption-wealth ratio in conjunction with a measure of aggregate stock market volatility exhibits substantial out-of-sample forecasting power for excess stock market returns. More...

PUBLISHED: Journal of Business, March 2006, 79(2), pp. 645-70

#2002-004B "Stock Prices, Firm Size, and Changes in the Federal Funds Rate Target"
by Hui Guo
January 2002
Revised November 2003

The Fed targeted the federal funds rate during the period 1974-79; they returned to that procedure in the late 1980s and have maintained it since then. For both periods, we find that stock prices reacted significantly to unanticipated changes in the federal funds rate target, but not to anticipated ones. More...

PUBLISHED: Quarterly Review of Economics & Finance, September 2004, 44(4), pp. 487-507

#2002-001A "Understanding the Risk-Return Tradeoff in the Stock Market"
by Hui Guo
January 2002

We find that past stock market variance forecasts excess stock market returns and that its predictive ability is greatly enhanced if the consumption-wealth ratio is also included in the forecasting equation.While the risk-return tradeoff is found negative if we use the latter as the instrumental variable for the conditional moments, the former suggests a positive one. More...