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Output and Expected Returns - a multicountry study

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Author Info
Rangvid, Jesper (Department of Finance, Copenhagen Business School)
Abstract

This 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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Publisher Info
Paper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2002-8.

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Length: 55 pages
Date of creation: 01 Dec 2002
Date of revision:
Handle: RePEc:hhs:cbsfin:2002_008

Contact details of provider:
Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3815
Email:
Web page: http://www.cbs.dk/departments/finance/
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Related research
Keywords: 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:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Campbell, John Y, 1993. "Intertemporal Asset Pricing without Consumption Data," American Economic Review, American Economic Association, vol. 83(3), pages 487-512, June. [Downloadable!] (restricted)
    Other versions:
  2. John Y. Campbell, 2000. "Asset Pricing at the Millennium," Harvard Institute of Economic Research Working Papers 1897, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
  3. Sydney Ludvigson & Martin Lettau, 1999. "Consumption, aggregate wealth and expected stock returns," Staff Reports 77, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  4. Lettau, Martin & Ludvigson, Sydney, 2001. "Measuring and Modelling Variation in the Risk-Return Trade-off," CEPR Discussion Papers 3105, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 1(3), pages 195-228. [Downloadable!] (restricted)
    Other versions:
  6. Lamont, Owen A., 2001. "Economic tracking portfolios," Journal of Econometrics, Elsevier, vol. 105(1), pages 161-184, November. [Downloadable!] (restricted)
  7. Martin Lettau & Sydney Ludvigson, 2001. "Resurrecting the (C)CAPM: A Cross-Sectional Test When Risk Premia Are Time-Varying," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1238-1287, December. [Downloadable!] (restricted)
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  8. Fama, Eugene F. & French, Kenneth R., 1989. "Business conditions and expected returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 25(1), pages 23-49, November. [Downloadable!] (restricted)
  9. Lettau, Martin & Ludvigson, Sydney, 2002. "Expected Returns and Expected Dividend Growth," CEPR Discussion Papers 3507, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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