Does Stock Return Predictability Imply Improved Asset Allocation and Performance? Evidence from the U.S. Stock Market (1954–2002)
AbstractThis paper provides evidence on the economic significance of the predictability in U.S. stock returns using a real-time asset allocation framework. We examine the performance of a Bayesian investor who relies on conditioning information (dividend yield, T-bill yield, default spread, and term spread) to forecast future returns and contrast it with that of an otherwise identical investor who believes in i.i.d. returns. We find that the relative performance of the information-based strategy is unstable over time, being noticeably poor during 1989–2002. In marked contrast, the strategy performs significantly better when it relies on a model-based approach based on the CAPM.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 79 (2006)
Issue (Month): 5 (September)
Contact details of provider:
Web page: http://www.journals.uchicago.edu/JB/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Shanken, Jay & Tamayo, Ane, 2012. "Payout yield, risk, and mispricing: A Bayesian analysis," Journal of Financial Economics, Elsevier, vol. 105(1), pages 131-152.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).
If references are entirely missing, you can add them using this form.