Economic Value of Stock Return Models: Evidence from Optimal Portfolio

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The book delves into the complexities of stock return predictability, highlighting the ongoing debate over the effectiveness of various economic indicators. It emphasizes the significance of incorporating stylized facts like stochastic volatility and jumps in stock return models. The findings suggest that while jumps influence optimal portfolio weights, a pure diffusion model outperforms jump-diffusion models in terms of portfolio performance. Additionally, integrating jumps in volatility can lead to enhanced economic benefits, presenting a nuanced perspective on investment strategies.