Table 3 Long-horizon empirical evidence...

Table 3

Long-horizon empirical evidence and robustness check

Panel A. Long-horizon regressions and bootstrapping, monthly (1953:04–2015:12)
	K = 3	K = 6	K = 12	K = 24	K = 36	K = 60
r_vw^e
FAMC	0.881*** (2.83) [2.47] 2.93	0.834*** (2.73) [2.36] 5.92	0.83*** (3.23) [2.79] 11.19	0.447*** (5.72) [3.63] 13.45	0.583*** (5.39) [6.08] 33.37	0.301*** (4.42) [2.22] 11.02
RREL	−3.852* (−1.76) [−1.47] 1.42	−3.752* (−1.90) [−1.59] 2.99	−1.954 (−1.12) [−1.09] 1.77	1.107 (−1.12) [−1.40] 1.41	1.074 (1.66) [1.60] 3.63	−1.918* (−2.04) [−1.33] 5.67
TermS	4.013* (1.85) [1.52] 1.56	3.819** (2.42) [1.71] 2.93	2.484** (2.39) [1.51] 2.46	1.317*** (3.37) [2.10] 2.14	1.80* (1.86) [2.29] 9.99	2.385*** (4.21) [2.12] 12.56
r_ew^e
FAMC	0.928** (2.20) [1.92] 1.81	0.914** (2.11) [1.84] 3.65	0.915** (2.29) [2.06] 7.01	0.327*** (3.46) [2.26] 4.62	0.355** (2.76) [3.23] 8.05	0.201* (1.85) [0.83] 3.11

Panel A. Long-horizon regressions and bootstrapping, monthly (1953:04–2015:12)
	K = 3	K = 6	K = 12	K = 24	K = 36	K = 60
r_vw^e
FAMC	0.881*** (2.83) [2.47] 2.93	0.834*** (2.73) [2.36] 5.92	0.83*** (3.23) [2.79] 11.19	0.447*** (5.72) [3.63] 13.45	0.583*** (5.39) [6.08] 33.37	0.301*** (4.42) [2.22] 11.02
RREL	−3.852* (−1.76) [−1.47] 1.42	−3.752* (−1.90) [−1.59] 2.99	−1.954 (−1.12) [−1.09] 1.77	1.107 (−1.12) [−1.40] 1.41	1.074 (1.66) [1.60] 3.63	−1.918* (−2.04) [−1.33] 5.67
TermS	4.013* (1.85) [1.52] 1.56	3.819** (2.42) [1.71] 2.93	2.484** (2.39) [1.51] 2.46	1.317*** (3.37) [2.10] 2.14	1.80* (1.86) [2.29] 9.99	2.385*** (4.21) [2.12] 12.56
r_ew^e
FAMC	0.928** (2.20) [1.92] 1.81	0.914** (2.11) [1.84] 3.65	0.915** (2.29) [2.06] 7.01	0.327*** (3.46) [2.26] 4.62	0.355** (2.76) [3.23] 8.05	0.201* (1.85) [0.83] 3.11

Panel B. Role of market cap in the denominator of FAMC, monthly (1926:07–2015:12)
Row	Independent variable definition	Coef_(FAMC)	Coef_ΔMC	Coef_ΔFA	N
1	FAMC + ΔMC	0.351*** (3.17)	0.892 (1.54)		1,072
2	FAMC + ΔFA	0.348*** (3.14)		−1.356 (−1.40)	1,072
3	FAMC when ΔFA > 0 and ΔMC < 0	0.597** (2.22)			262
4	FAMC when ΔFA > 0 and ΔMC > 0	0.218 (1.47)			413

Panel B. Role of market cap in the denominator of FAMC, monthly (1926:07–2015:12)
Row	Independent variable definition	Coef_(FAMC)	Coef_ΔMC	Coef_ΔFA	N
1	FAMC + ΔMC	0.351*** (3.17)	0.892 (1.54)		1,072
2	FAMC + ΔFA	0.348*** (3.14)		−1.356 (−1.40)	1,072
3	FAMC when ΔFA > 0 and ΔMC < 0	0.597** (2.22)			262
4	FAMC when ΔFA > 0 and ΔMC > 0	0.218 (1.47)			413

Note(s): Panel A of Table 3 presents long-horizon regression results for continuously compounded excess returns on value-weighted market return at long horizons. It is based on predictive regression r_{t+1, t+k} = a + β_kξ_t + ∈_t+1,t+k. Independent variables, ξ, are (1) FAMC, (2) RREL, (3) term spread and (4) dividend to price ratio. For each predictor, line 1 reports coefficient estimates, line 2 reports asymptotic Newey–West t-statistics (with K lags), line 3 reports t-statistics based on a 10,000-sample bootstrapping experiment and line 4 reports R²(%) of each regression. ***, ** and * represent statistical significance levels at 1, 5 and 10%, respectively. All variables used are in natural logs. The bottom part of this table presents the result for FAMC based on equally weighted return

The first two rows of panel B in Table 3 present how a simple change in market cap and total Fed assets affects the predictive power offered by FAMC for value-weighted market return, as shown by their respective coefficients. Row 3 (4) show what happens to the predictive power of FAMC when Fed's assets are increasing while market cap is decreasing (increasing)

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