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Even when predicting asset returns with classical CAPM or Fama-French 3, 4, or 5 factor models, estimates will tend to have significant estimation error, and as explained by the others, univariate vs multivariate are equivalent. The difficulty of predicting asset means has been well known since Merton (1980) and that's why most people, at least in asset ...


The answer is at least, in part, definitional. The original definition of the process constrains the model to $0<\alpha<1$ to assure a convex combination of the two terms. It assures that the prediction is between the two values at all times. Software to estimate the solution should be properly constrained so that a result of 1.4 cannot happen. The ...


There are two other possibilities not mentioned in the above answers. Consider the time series $x_{t+1}=\beta{x}_t+\epsilon_{t+1}$. Assume $t\in\{81,82\}$ are missing. The question is why are they missing. Consider three possible cases. The first is that it is a holiday or a similar day where there was no activity. The second is omission as a recording ...

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