The existence and source of stock return predictability

Evidence from dividend, consumption and output ratios

David McMillan (Corresponding Author), Angela Black, Olga Klinkowska, Fiona McMillan

Research output: Contribution to journalArticle

7 Downloads (Pure)

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
Early online date30 Apr 2015
DOIs
Publication statusPublished - May 2015

Fingerprint

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

Keywords

  • stock returns
  • predictability
  • ratios
  • long-horizon

Cite this

The existence and source of stock return predictability : Evidence from dividend, consumption and output ratios. / McMillan, David (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

@article{58fc05a0ce8e4416b2b1385ac4a0d0c6,
title = "The existence and source of stock return predictability: Evidence from dividend, consumption and output ratios",
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.",
keywords = "stock returns, predictability, ratios, long-horizon",
author = "David McMillan and Angela Black and Olga Klinkowska and Fiona McMillan",
year = "2015",
month = "5",
doi = "10.1057/jam.2015.11",
language = "English",
volume = "16",
pages = "186--208",
journal = "Journal of Asset Management",
issn = "1470-8272",
publisher = "Palgrave Macmillan Ltd.",
number = "3",

}

TY - JOUR

T1 - The existence and source of stock return predictability

T2 - Evidence from dividend, consumption and output ratios

AU - McMillan, David

AU - Black, Angela

AU - Klinkowska, Olga

AU - McMillan, Fiona

PY - 2015/5

Y1 - 2015/5

N2 - 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.

AB - 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.

KW - stock returns

KW - predictability

KW - ratios

KW - long-horizon

U2 - 10.1057/jam.2015.11

DO - 10.1057/jam.2015.11

M3 - Article

VL - 16

SP - 186

EP - 208

JO - Journal of Asset Management

JF - Journal of Asset Management

SN - 1470-8272

IS - 3

ER -