What is stock return predictability
It’s the most wonderful time of the year — when investment gurus unveil their predictions for what the stock market will return in the coming year. We investigate lead‐lag relationships among monthly country stock returns and identify a leading role for the United States: lagged U.S. returns significantly predict returns in numerous non‐U.S. industrialized countries, while lagged non‐U.S. returns display limited predictive ability with respect to U.S. returns. We now use the excess stock return on the left hand side of our regressions, which we calculate by subtracting the short-term interest rate from the stock return. We thus re-estimate our model by subtracting eq. from eq. . The results are presented in Table 3. The significance of the short term interest rate improves across countries when Stock Return Predictability and Variance Risk Premia: Statistical Inference and International Evidence - Volume 49 Issue 3 - Tim Bollerslev, James Marrone, Lai Xu, Hao Zhou. Skip to main content. We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Payout Yields and Stock Return Predictability: How Important Is the Measure of Cash Flow? - Volume 52 Issue 4 - Gregory W. Eaton, Bradley S. Paye Predictability of Stock Returns: Robustness and Economic Significance M. HASHEM PESARAN AND ALLAN TIMMERMANN* ABSTRACT This article examines the robustness of the evidence on predictability of U.S. stock returns, and addresses the issue of whether this predictability could have been the stationarity of long-horizon returns, Lanne (2002) concludes that stock returns cannot be predicted by a highly persistent predictor variable. Building on the finite-sample theory of Stambaugh (1999), Lewellen (2004) finds some evidence for predictability with valuation ratios.
Returns on stocks and stock markets are the result of just three factors, two of which are easy to predict. The hard factor to predict is Price/Earnings ratio because it is driven by investor
stock returns as a proxy for the state variables. Fama (1991) has emphasized the importance of establishing a link between the time-series and cross-sectional stock return predictability. Thus, imposing the ICAPM restriction makes our specification less vulnerable to data mining, although it cannot be ruled out completely. We investigate lead‐lag relationships among monthly country stock returns and identify a leading role for the United States: lagged U.S. returns significantly predict returns in numerous non‐U.S. industrialized countries, while lagged non‐U.S. returns display limited predictive ability with respect to U.S. returns. Section 6 investigates the predictive power of the earnings yield for excess returns and cash flows. Section 7 concludes and briefly discusses a number of contemporaneous papers on stock return predictability. It appears that the literature is converging to a new consensus, substantially different from the old view. Returns on stocks and stock markets are the result of just three factors, two of which are easy to predict. The hard factor to predict is Price/Earnings ratio because it is driven by investor International Stock Return Predictability 1635 Granger causality test results demonstrate the predictive power of lagged U.S. returns: U.S. returns significantly Granger cause returns in 9 of the 10 non-U.S. countries, and lagged U.S. returns have a quantitatively important impact on non-U.S. returns.5 predictability of U.S. stock returns, explicitly accounting for the forecasting uncertainty faced by investors who only have access to historical information. Rather than assuming that investors somehow historically knew that a spe- Rapach, David and Strauss, Jack and Zhou, Guofu, International Stock Return Predictability: What is the Role of the United States? (May 22, 2012). Journal of Finance, Forthcoming.
International Stock Return Predictability: What Is the Role of the United States? ( Digest Summary). David E. Rapach Jack K. Strauss Guofu Zhou Journal of
We ask whether stock returns in France, Germany, Japan, the UK and the US are predictable by three instruments: the dividend yield, the earnings yield and the with the average IV, and these variables have similar predictive power for stock returns. Keywords: Stock Return Predictability, Average Idiosyncratic Variance, Lamont (1998) argues that the earnings yield has independent forecasting power for excess stock returns in addition to the dividend yield. When we examine the We improve volatility forecasts using Google's daily internet search volume index. •. We demonstrate that the sign of S&P 500 stock returns can be predictable. However, within the view that asset returns are predictable, there are problems relating to the performance of the prediction models. Welch and Goyal (2008) find Stock Return Predictability regression provides a rather poor proxy to true expected returns. How- ever, using both the short rate and dividend yield considerably International Stock Return Predictability: What Is the Role of the United States? ( Digest Summary). David E. Rapach Jack K. Strauss Guofu Zhou Journal of
The authors analyze the out-of-sample performance of asset allocation decisions based on financial ratio predictability of aggregate stock market returns under
with the average IV, and these variables have similar predictive power for stock returns. Keywords: Stock Return Predictability, Average Idiosyncratic Variance, Lamont (1998) argues that the earnings yield has independent forecasting power for excess stock returns in addition to the dividend yield. When we examine the
predictability of U.S. stock returns, explicitly accounting for the forecasting uncertainty faced by investors who only have access to historical information. Rather than assuming that investors somehow historically knew that a spe-
the earnings yield for excess returns and cashflows. Section 8 concludes and briefly discusses a number of contemporaneous papers on stock return predictability. It appears that the literature is converging to a new consensus, substantially different from the old view. 2 Data We ask whether stock returns in France, Germany, Japan, the UK and the US are predictable by three instruments: the dividend yield, the earnings yield and the short rate. The predictability regression is suggested by a present value model with earnings growth, payout ratios and the short rate as state variables.
Two problems, spurious regression bias and naïve data mining, conspire to mislead analysts about predictive models for stock returns. This article demonstrates This paper evaluates the predictability of monthly stock return using out-of- sample (multi-step ahead and dynamic) prediction intervals. Past studies have 4 Feb 2019 Stock Return Predictability by using Market Ratio, Trading Volume, and Stock Variance. Tejosaputro, Klaudia Fraulein and Murhadi, Werner Ria