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A mixed frequency approach for stock returns and valuation ratios

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  • Dergiades, Theologos
  • Milas, Costas
  • Panagiotidis, Theodore

Abstract

We employ a Mixed-Frequency VAR to study the effect of four valuation ratios (the price–dividend ratio, the price–earnings ratio, the Cyclically Adjusted Price Earnings Ratio and the Total Return Cyclically Adjusted Price Earnings Ratio) on the US stock market. We quantify the interaction between high and low frequency data. We show that all valuation ratios (observed at a monthly frequency) significantly affect stock market returns (observed at a daily frequency) at both long and short horizons.

Suggested Citation

  • Dergiades, Theologos & Milas, Costas & Panagiotidis, Theodore, 2020. "A mixed frequency approach for stock returns and valuation ratios," Economics Letters, Elsevier, vol. 187(C).
    • Handle: RePEc:eee:ecolet:v:187:y:2020:i:c:s0165176519304355
    DOI: 10.1016/j.econlet.2019.108861
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    References listed on IDEAS

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    1. Ravi Jagannathan & Binying Liu, 2019. "Dividend Dynamics, Learning, and Expected Stock Index Returns," Journal of Finance, American Finance Association, vol. 74(1), pages 401-448, February.
    2. Kwang Hun Choi & Chang‐Jin Kim & Cheolbeom Park, 2017. "Regime Shifts in Price‐Dividend Ratios and Expected Stock Returns: A Present‐Value Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(2-3), pages 417-441, March.
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    10. Ghysels, Eric & Hill, Jonathan B. & Motegi, Kaiji, 2016. "Testing for Granger causality with mixed frequency data," Journal of Econometrics, Elsevier, vol. 192(1), pages 207-230.
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    Cited by:

    1. Theologos Dergiades & Panos K. Pouliasis, 2023. "Should stock returns predictability be ‘hooked on’ long‐horizon regressions?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 718-732, January.
    2. Hu, Jinyan & Wang, Kai-Hua & Su, Chi Wei & Umar, Muhammad, 2022. "Oil price, green innovation and institutional pressure: A China's perspective," Resources Policy, Elsevier, vol. 78(C).
    3. Wang, Kai-Hua & Su, Chi-Wei & Umar, Muhammad, 2021. "Geopolitical risk and crude oil security: A Chinese perspective," Energy, Elsevier, vol. 219(C).

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    More about this item

    Keywords

    Stock index returns; Valuation ratios; MF-VAR; Impulse response analysis;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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