On the Out-of-Sample Predictability of Stock Market Returns
Abstract
In this paper, I provide new evidence of the out-of-sample predictability of stock returns. In particular, I find that the consumption-wealth ratio in conjunction with a measure of aggregate stock market volatility exhibits substantial out-of-sample forecasting power for excess stock market returns. Also, simple trading strategies based on the documented predictability generate returns of higher mean and lower volatility than the buy-and-hold strategy does, and this difference is economically important.Download Info
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Bibliographic Info
Article provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 79 (2006)
Issue (Month): 2 (March)
Pages: 645-670
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Web page: http://www.journals.uchicago.edu/JB/
Related research
Keywords:Other versions of this item:
- Hui Guo, 2003. "On the out-of-sample predictability of stock market returns," Working Papers 2002-008, Federal Reserve Bank of St. Louis.
References
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Moreno, David & Olmeda, Ignacio, 2007.
"Is the predictability of emerging and developed stock markets really exploitable?,"
Open Access publications from Universidad Carlos III de Madrid
info:hdl:10016/7746, Universidad Carlos III de Madrid.
- Moreno, David & Olmeda, Ignacio, 2007. "Is the predictability of emerging and developed stock markets really exploitable?," European Journal of Operational Research, Elsevier, vol. 182(1), pages 436-454, October.
- Miguel A. Ferreira & Pedro Santa-Clara, 2008. "Forecasting Stock Market Returns: The Sum of the Parts is More than the Whole," NBER Working Papers 14571, National Bureau of Economic Research, Inc.
- Jiang, Xiaoquan & Lee, Bong-Soo, 2007. "Stock returns, dividend yield, and book-to-market ratio," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 455-475, February.
- Della Corte, Pasquale & Sarno, Lucio & Valente, Giorgio, 2010. "A century of equity premium predictability and the consumption-wealth ratio: An international perspective," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 313-331, June.
- Laurence Fung & Ip-wing Yu, 2008. "Predicting Stock Market Returns by Combining Forecasts," Working Papers 0801, Hong Kong Monetary Authority.
- Christopher J. Neely & David E. Rapach & Jun Tu & Guofu Zhou, 2010. "Out-of-sample equity premium prediction: economic fundamentals vs. moving-average rules," Working Papers 2010-008, Federal Reserve Bank of St. Louis.
- Ferreira, Miguel A. & Santa-Clara, Pedro, 2011. "Forecasting stock market returns: The sum of the parts is more than the whole," Journal of Financial Economics, Elsevier, vol. 100(3), pages 514-537, June.
- Wegener, Christian & von Nitzsch, RĂ¼diger & Cengiz, Cetin, 2010. "An advanced perspective on the predictability in hedge fund returns," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2694-2708, November.
- Shue-Jen Wu & Wei-Ming Lee, 2012. "Predicting the U.S. bear stock market using the consumption-wealth ratio," Economics Bulletin, AccessEcon, vol. 32(4), pages 3174-3181.
- Yufeng Han, 2010. "On the Economic Value of Return Predictability," Annals of Economics and Finance, Society for AEF, vol. 11(1), pages 1-33, May.
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