Return Predictability in Recessions: an Asset Pricing Perspective
feb 27
February 27.
13:15 - 14:30
Frankel Leo ut 30-34
Room: 305, CEU InnovationsLab
Social Event
Return Predictability in Recessions: an Asset Pricing Perspective
Print Friendly and PDF

Date: February 27, 2013 - 13:15 - 14:30
Building: Frankel Leo ut 30-34
Room: 305, CEU InnovationsLab
Event type: Seminar
Event audience: CEU Community Only

A Guest Scholar Seminar by
Antonio Gargano
Bocconi University, visiting UCSD

I show that the dividend-price ratio predicts aggregate stock market returns with higher precision during recessions than in expansions, in a way that is both statistically and economically significant. This empirical evidence cannot be reconciled with three popular asset pricing ap-proaches: habit-persistence (Campbell and Cochrane (1999)), long-run risk (Bansal and Yaron (2004)) and rare disasters (Gourio (2012)). Instead, I propose a long-run risk model with three new features. First, I link volatility and left tail events in consumption and dividend growth: positive shocks to volatility lead to a higher probability of observing negative growth rates. Second, I introduce negative skewness: investors require higher risk premia when they anticipate negative future consumption growth. Third, the model also incorporates the negative relation between the conditional mean and the conditional variance of growth rates because periods of high volatility are more likely to generate negative growth rates. These features, for which I find strong support in the data, allow the model to match the business-cycle fluctuations in return predictability observed empirically.

Keywords: return predictability, long-run risk, business-cycle

Download full paper

Short Bio
Antonio Gargano is a job market candidate from Bocconi University/University of California San Diego. He spent the first two and half years at Bocconi University where he completed coursework requirements and the last three years at UCSD doing research under the supervision of Professor Allan Timmermann. His research interests include theoretical and empirical asset pricing, portfolio choice and financial econometrics.

He received his Bachelor in Philosophy from University of Neaples "Federico II" and his MSc in Finance from University of Pisa. Before joining the PhD program at Bocconi he was a junior portfolio manager at Anima SGR (8bl$ AUM) in Milan.


  • "I have been recently nominated as the Regional IT Manager for West Africa at Unilever. My CEU Business School education has been a key differentiator during an otherwise very competitive recruitment process. I would like to thank all my great peers of the 2013-14 cohort and the wonderful faculty at the B-School for the valuable learning experience I had during my time in BP."

    Moussa Moumouni

    MSc in IT Management class of 2014

  • 📞+36 1 887 5000
  • Nádor u. 9.
    Budapest 1051, Hungary