Output and Expected Returns - a multicountry study
AbstractThis paper analyzes whether the price-output ratio (the cpy-ratio) predicts real stock returns in twelve OECD countries. The cpy-ratio is a ratio of a share price to a macroeconomic variable. Traditionally, either ratios of purely financial indicators, ratios of purely macroeconomic indicators, or ratios of macroeconomic indicators to wealth have been used to predict returns. However, if share prices are mean reverting, and thus contain a predictable component, and predictability of returns is related to the macroeconomic environment that ultimately determines the investment opportunities, a ratio of a share price to a macroeconomic variable could be believed to predict returns. The analyses reveal that the cpy-ratios do indeed predict future stock returns in most of the countries that are studied.
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Bibliographic InfoPaper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2002-8.
Length: 55 pages
Date of creation: 01 Dec 2002
Date of revision:
Contact details of provider:
Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3815
Web page: http://www.cbs.dk/departments/finance/
More information through EDIRC
share prices; output of firms; return predictability;
Find related papers by JEL classification:
- F30 - International Economics - - International Finance - - - General
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-13 (All new papers)
- NEP-CFN-2003-04-13 (Corporate Finance)
- NEP-MAC-2003-04-13 (Macroeconomics)
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