We study in detail the log-linear return approximation introduced by Campbell and Shiller (1988a). First, we derive an upper bound for the mean approximation error, given stationarity of the log dividend-price ratio. Next, we simulate various rational bubbles that have explosive conditional...

We analyze the pitfalls involved in VAR based return decompositions. First, we show that recent criticism of such decompositions is misplaced and builds on invalid VAR models and erroneous interpretations. Second, we derive the requirements needed for VAR decompositions to be valid. A crucial...

"US and UK stock returns are highly positively correlated over the period 1918-99. Using VAR-based variance decompositions, we investigate the nature of this comovement. Excess return innovations are decomposed into news about future dividends, real interest rates, and excess returns. We find...

We investigate the C-CAPM and the equity premium puzzle using asset returns and consumption data from the US and Denmark. In contrast to previous studies the investigation is carried out with both short and long investment horizons. In addition, we introduce a Markovian bootstrap approach to...

We suggest a new test for speculative stock market bubbles that has several advantages compared to earlier bubble tests. The test makes use of the fact that the variance of excess return innovations and the variance of (dividend news minus interest rate news minus excess returm news) will be...

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We present a new dividend-adjusted blue chip index for the Dan- <p> ish stock market covering the period 1985-2002. In contrast to <p> other indices on the Danish stock market, the index is calcu- <p> lated on a daily basis. In the first part of the paper a detailed <p> description of the construction of...</p></p></p></p>