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Time-varying short-horizon predictability

  • Henkel, Sam James
  • Martin, J. Spencer
  • Nardari, Federico

In the G7 countries, the short-horizon performance of aggregate return predictors such as the dividend yield and the short rate appears non-existent during business cycle expansions but sizable during contractions. This phenomenon appears related to countercyclical risk premiums as well as the time-variation in the dynamics of predictors. Our empirical model outperforms the historical average out-of-sample in the US, but the results throughout the G7 are mixed.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 99 (2011)
Issue (Month): 3 (March)
Pages: 560-580

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Handle: RePEc:eee:jfinec:v:99:y:2011:i:3:p:560-580
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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