The existence and source of stock return predictability

Evidence from dividend, output and consumption ratios

David McMillan (Lead / Corresponding author), Angela Black, Olga Klinkowska, Fiona McMillan

    Research output: Contribution to journalArticle

    Abstract

    This article considers stock return predictability and its source using ratios derived from stock prices, dividends, output and consumption. We analyse 29 stock markets (sampled quarterly) and s17 stock markets (sampled annually). One-period ahead predictive regressions provide some support for predictability of returns although there is also evidence supporting dividend and consumption growth predictability. Greater evidence for predictable stock market returns is found when estimating panel regressions and through consideration of long-horizon predictability. Furthermore, examining long horizons allows us to comment on the source of predictability. Our results suggest that predictability arises from both time variation in expected returns (risk appetite) and cash flow.

    Original languageEnglish
    Pages (from-to)186-208
    Number of pages23
    JournalJournal of Asset Management
    Volume16
    Issue number3
    DOIs
    Publication statusPublished - May 2015

    Fingerprint

    Predictability
    Dividends
    Predictability of stock returns
    Stock market
    Expected returns
    Cash flow
    Predictive regressions
    Time variation
    Stock return predictability
    Risk appetite
    Consumption growth
    Stock market returns
    Panel regression
    Stock prices

    Keywords

    • Long horizon
    • Predictability
    • Ratios
    • Stock returns

    Cite this

    McMillan, David ; Black, Angela ; Klinkowska, Olga ; McMillan, Fiona. / The existence and source of stock return predictability : Evidence from dividend, output and consumption ratios. In: Journal of Asset Management. 2015 ; Vol. 16, No. 3. pp. 186-208.
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    The existence and source of stock return predictability : Evidence from dividend, output and consumption ratios. / McMillan, David (Lead / Corresponding author); Black, Angela; Klinkowska, Olga; McMillan, Fiona.

    In: Journal of Asset Management, Vol. 16, No. 3, 05.2015, p. 186-208.

    Research output: Contribution to journalArticle

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