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International Stock Return Predictability Under Model Uncertainty

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Author Info
Schrimpf, Andreas

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Abstract

This paper examines return predictability when the investor is uncertain about the right state variables. A novel feature of the model averaging approach used in this paper is to account for finite-sample bias of the coefficients in the predictive regressions. Drawing on an extensive international dataset, we find that interest-rate related variables are usually among the most prominent predictive variables, whereas valuation ratios perform rather poorly. Yet, predictability of market excess returns weakens substantially, once model uncertainty is accounted for. We document notable differences in the degree of in-sample and out-of-sample predictability across different stock markets. Overall, these findings suggests that return predictability is not a uniform and a universal feature across international capital markets. --

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 08-048.

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Date of creation: 2008
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Handle: RePEc:zbw:zewdip:7358

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Related research
Keywords: Stock Return Predictability; Bayesian Model Averaging; Model Uncertainty; International Stock Markets;

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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