Stock Return Predictability: Is it There? / Andrew Ang, Geert Bekaert.

Format:

Book

Author/Creator:

Ang, Andrew.

Contributor:

National Bureau of Economic Research.

Bekaert, Geert.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8207.

NBER working paper series no. w8207

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Stock Return Predictability

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

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. We use this model imposing a constant risk premium to examine the finite sample evidence on predictability. Not only do we find the short rate to be a relevant state variable theoretically, it is also the only robust short-run predictor of equity returns. The evidence in Lamont (1998) on earnings and dividend yield predictability is not robust to our increased sample period, does not survive finite sample corrections and does not extend to other countries. We find no evidence of long-horizon predictability once we account for finite sample influence. Finally, cross-country predictability appears stronger than predictability using local instruments.

Notes:

Print version record

April 2001.