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The Predictability of Aggregate Stock Market Returns: Evidence Based on Glamour Stocks

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  • Venkat R. Eleswarapu

    (Southern Methodist University)

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    Abstract

    We find that annual excess returns on the stock market index are negatively related to the returns of glamour stocks in the previous 36-month period. In contrast, neither returns of value stocks nor aggregate stock market returns, purged of glamour stock effects, have any predictive power. In addition, the excess returns on the aggregate market are negatively skewed when the prior returns of glamour stocks are high. Finally, the inclusion of term premium, default premium, aggregate dividend yield, and the consumption-to-wealth ratio (CAY) as control variables do not materially alter the predictive power of prior glamour stock returns.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 77 (2004)
    Issue (Month): 2 (April)
    Pages: 275-294

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    Handle: RePEc:ucp:jnlbus:v:77:y:2004:i:2:p:275-294

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Polk, Christopher & Vuolteenaho, Tuomo & Campbell, John Y., 2010. "Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns," Scholarly Articles 9887622, Harvard University Department of Economics.
    2. Campbell, John & Vuolteenaho, Tuomo, 2004. "Bad Beta, Good Beta," Scholarly Articles 3122489, Harvard University Department of Economics.
    3. Eleswarapu, Venkat R. & Thompson, Rex, 2007. "Testing for negative expected market return premia," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1755-1770, June.
    4. John Y. Campbell & Christopher Polk & Tuomo Vuolteenaho, 2005. "Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns," NBER Working Papers 11389, National Bureau of Economic Research, Inc.
    5. Jiang, Danling, 2006. "Investor Overreaction, Cross-Sectional Dispersion of Firm Valuations, and Expected Stock Returns," Working Paper Series 2006-8, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    6. Jurek, Jakub W & Viceira, Luis M, 2006. "Optimal Value and Growth Tilts in Long-Horizon Portfolios," CEPR Discussion Papers 5773, C.E.P.R. Discussion Papers.
    7. Jiang, Xiaoquan & Zaman, Mir A., 2010. "Aggregate insider trading: Contrarian beliefs or superior information?," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1225-1236, June.
    8. Miguel Anton & Christopher Polk, 2010. "Connected stocks," LSE Research Online Documents on Economics 43098, London School of Economics and Political Science, LSE Library.
    9. Guo, Hui & Savickas, Robert, 2010. "Relation between time-series and cross-sectional effects of idiosyncratic variance on stock returns," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1637-1649, July.
    10. Miguel Anton, & Christopher Polk, 2010. "Connected Stocks," FMG Discussion Papers dp651, Financial Markets Group.
    11. Lieven Baele & Pilar Soriano, 2010. "The determinants of increasing equity market comovement: economic or financial integration?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(3), pages 573-589, September.
    12. Campbell, John, 2008. "Estimating the Equity Premium," Scholarly Articles 3196339, Harvard University Department of Economics.

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