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International Evidence for Return Predictability and the Implications for Long-Run Covariation of the G7 Stock Markets

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  • Nitschka Thomas

    (University of Zurich,Zürich, Switzerland)

Abstract

Temporary fluctuations of the US consumption-wealth ratio do not only predict excess returns on the US but also international stock markets at the business cycle frequency. This finding is the reflection of a common, temporary component in national stock markets. Exposure to this common component explains up to 50% of the pairwise covariation among long-horizon returns on the G7 stock markets for the time period from 1970 to 2008. This latter finding is less pronounced in the post-1990s period.

Suggested Citation

  • Nitschka Thomas, 2010. "International Evidence for Return Predictability and the Implications for Long-Run Covariation of the G7 Stock Markets," German Economic Review, De Gruyter, vol. 11(4), pages 527-544, December.
    • Handle: RePEc:bpj:germec:v:11:y:2010:i:4:p:527-544
    DOI: 10.1111/j.1468-0475.2009.00494.x
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    Cited by:

    1. Nitschka, Thomas, 2011. "Banking sectors' international interconnectedness: Implications for consumption risk sharing in Europe," VfS Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48684, Verein für Socialpolitik / German Economic Association.
    2. Choi, Gahyun & Park, Kwangyeol & Yi, Eojin & Ahn, Kwangwon, 2023. "Price fairness: Clean energy stocks and the overall market," Chaos, Solitons & Fractals, Elsevier, vol. 168(C).
    3. Su, Xianfang, 2020. "Dynamic behaviors and contributing factors of volatility spillovers across G7 stock markets," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    4. Castro, Andressa Monteiro de & Issler, João Victor, 2016. "Consumption-Wealth Ratio and Expected Stock Returns: Evidence from Panel Data on G7 Countries," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 70(4), December.
    5. Mathias Hoffmann & Thomas Nitschka, 2008. "Securitization of Mortgage Debt, Asset Prices and International Risk Sharing," IEW - Working Papers 376, Institute for Empirical Research in Economics - University of Zurich.
    6. Nitschka, Thomas, 2013. "The impact of (global) business cycle risk on the German and British stock markets: Evidence from the first age of globalization," Review of Financial Economics, Elsevier, vol. 22(3), pages 118-124.
    7. Thomas Nitschka, 2012. "Global and country-specific business cycle risk in time-varying excess returns on asset markets," Working Papers 2012-10, Swiss National Bank.
    8. Alain Galli, 2017. "How Reliable are Cointegration-Based Estimates for Wealth Effects on Consumption? Evidence from Switzerland," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 153(4), pages 437-479, October.
    9. Khurshid M. Kiani, 2016. "On Modelling and Forecasting Predictable Components in European Stock Markets," Computational Economics, Springer;Society for Computational Economics, vol. 48(3), pages 487-502, October.
    10. Thomas Nitschka, 2010. "Idiosyncratic consumption risk and predictability of the carry trade premium: Euro-Area evidence," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 24(1), pages 49-65, March.
    11. Nitschka, Thomas, 2014. "Developed markets’ business cycle dynamics and time-variation in emerging markets’ asset returns," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 76-82.
    12. Nitschka, Thomas, 2011. "About the soundness of the US-cay indicator for predicting international banking crises," The North American Journal of Economics and Finance, Elsevier, vol. 22(3), pages 237-256.
    13. Shi, Huai-Long & Zhou, Wei-Xing, 2017. "Wax and wane of the cross-sectional momentum and contrarian effects: Evidence from the Chinese stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 486(C), pages 397-407.
    14. Thomas Nitschka, 2008. "The Risk Premium on the Euro Area Market Portfolio: The Role of Real Estate," IEW - Working Papers 385, Institute for Empirical Research in Economics - University of Zurich.
    15. Shi, Huai-Long & Zhou, Wei-Xing, 2017. "Time series momentum and contrarian effects in the Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 483(C), pages 309-318.
    16. Nitschka, Thomas, 2010. "Securitization, collateral constraints and consumption risk sharing in the euro area," Economics Letters, Elsevier, vol. 106(3), pages 197-199, March.
    17. Nitschka, Thomas, 2010. "Cashflow news, the value premium and an asset pricing view on European stock market integration," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1406-1423, November.
    18. Su, Xianfang, 2020. "Measuring extreme risk spillovers across international stock markets: A quantile variance decomposition analysis," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).

    More about this item

    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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