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On the Out-of-Sample Predictability of Stock Market Returns

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  • Hui Guo

    (Federal Reserve Bank of St. Louis)

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.

Suggested Citation

  • Hui Guo, 2006. "On the Out-of-Sample Predictability of Stock Market Returns," The Journal of Business, University of Chicago Press, vol. 79(2), pages 645-670, March.
    • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:2:p:645-670
    DOI: 10.1086/499134
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