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Is stock return predictability time-varying?

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  • Devpura, Neluka
  • Narayan, Paresh Kumar
  • Sharma, Susan Sunila

Abstract

Using historical data (January 1927 to December 2014), this paper shows that stock return predictability is time-varying based on several well-known predictors from the literature. However, only 7 of 14 predictors exhibit this time-varying predictability pattern. For the remaining predictors, either there is no predictability or predictability is not time-dependent. We also examine the determinants of time-varying predictability. We show that (a) both expected and unexpected shocks emanating from financial variables, and (b) phases of predictability (which capture market volatility) explain return predictability.

Suggested Citation

  • Devpura, Neluka & Narayan, Paresh Kumar & Sharma, Susan Sunila, 2018. "Is stock return predictability time-varying?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 52(C), pages 152-172.
    • Handle: RePEc:eee:intfin:v:52:y:2018:i:c:p:152-172
    DOI: 10.1016/j.intfin.2017.06.001
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    References listed on IDEAS

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