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Fundamentals Efficiency of the Italian Stock Market: Some Long Run Evidence

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  • Giuseppe Alesii

    (Facolta di Economia, Universita di L'Aquila, Italy)

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    Abstract

    A predictive regression approach is adopted to test fundamental efficiency of the Italian equities market on a new long run (1913 to 1999) time series of returns and fundamentals, namely dividend price, earnings price, and price to book. Univariate and vector autoregression significance is tested with Monte Carlo and bootstrapping simulation methods. Some evidence of predictability of stock returns is found especially with respect to the price to book ratio.

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    Bibliographic Info

    Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

    Volume (Year): 5 (2006)
    Issue (Month): 3 (December)
    Pages: 245-264

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    Handle: RePEc:ijb:journl:v:5:y:2006:i:3:p:245-264

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    Postal: 100 Wenhwa Road, Seatwen, Taichung
    Web page: http://www.ijbe.org/
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    Related research

    Keywords: dividend yield; price earning; price to book ratio; VAR; long horizon predictive regressions;

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    References

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    1. Owen Lamont, 1998. "Earnings and Expected Returns," Journal of Finance, American Finance Association, vol. 53(5), pages 1563-1587, October.
    2. Amit Goval & Ivo Welch, 2004. "A Comprehensive Look at the Empirical Performance of Equity Premium Prediction," NBER Working Papers 10483, National Bureau of Economic Research, Inc.
    3. Goetzman, W.N. & Jorion, P., 1992. "Testing the Predictive Power of Dividend Yields," Papers 93-03, Columbia - Graduate School of Business.
    4. Martin Lettau & Stijn Van Nieuwerburgh, 2008. "Reconciling the Return Predictability Evidence," Review of Financial Studies, Society for Financial Studies, vol. 21(4), pages 1607-1652, July.
    5. Barone, E., 1990. "The italian stock market : Efficiency and calendar anomalies," Journal of Banking & Finance, Elsevier, vol. 14(2-3), pages 483-510, August.
    6. John Y. Campbell, 1990. "A Variance Decomposition for Stock Returns," NBER Working Papers 3246, National Bureau of Economic Research, Inc.
    7. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, Octomber.
    8. Valkanov, Rossen, 2003. "Long-horizon regressions: theoretical results and applications," Journal of Financial Economics, Elsevier, vol. 68(2), pages 201-232, May.
    9. Pontiff, Jeffrey & Schall, Lawrence D., 1998. "Book-to-market ratios as predictors of market returns," Journal of Financial Economics, Elsevier, vol. 49(2), pages 141-160, August.
    10. Walter Torous & Rossen Valkanov & Shu Yan, 2004. "On Predicting Stock Returns with Nearly Integrated Explanatory Variables," The Journal of Business, University of Chicago Press, vol. 77(4), pages 937-966, October.
    11. Hodrick, Robert J, 1992. "Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 357-86.
    12. John Y. Campbell & Robert J. Shiller, 1988. "Stock Prices, Earnings and Expected Dividends," NBER Working Papers 2511, National Bureau of Economic Research, Inc.
    13. Lewellen, Jonathan, 2004. "Predicting returns with financial ratios," Journal of Financial Economics, Elsevier, vol. 74(2), pages 209-235, November.
    14. John H. Cochrane, 2006. "The Dog That Did Not Bark: A Defense of Return Predictability," NBER Working Papers 12026, National Bureau of Economic Research, Inc.
    15. Kothari, S. P. & Shanken, Jay, 1997. "Book-to-market, dividend yield, and expected market returns: A time-series analysis," Journal of Financial Economics, Elsevier, vol. 44(2), pages 169-203, May.
    16. Charles M. C. Lee & James Myers & Bhaskaran Swaminathan, 1999. "What is the Intrinsic Value of the Dow?," Journal of Finance, American Finance Association, vol. 54(5), pages 1693-1741, October.
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    Cited by:
    1. Jeffrey E. Jarrett, 2008. "Predicting Daily Stock Returns: A Lengthy Study of the Hong Kong and Tokyo Stock Exchanges," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 7(1), pages 37-51, April.
    2. Romilda Mazzotta & Stefania Veltri, 2014. "The relationship between corporate governance and the cost of equity capital. Evidence from the Italian stock exchange," Journal of Management and Governance, Springer, vol. 18(2), pages 419-448, May.

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