Predicting Global Stock Returns

By Erik Hjalmarsson. Journal of Financial and Quantitative Analysis, 2008

300 citations recorded by the source corpus.

Abstract I test for stock return predictability in the largest and most comprehensive data set analyzed so far, using four common forecasting variables: the dividend-price (DP) and earnings-price (EP) ratios, the short interest rate, and the term spread. The data contain over 20,000 monthly observations from 40 international markets, including 24 developed and 16 emerging economies. In addition, I develop new methods for predictive regressions with panel data. Inference based on the standard fixed effects estimator is shown to suffer from severe size distortions in the typical stock return regression, and an alternative robust estimator is proposed. The empirical results indicate that the short interest rate and the term spread are fairly robust predictors of stock returns in developed markets. In contrast, no strong or consistent evidence of predictability is found when considering the EP and DP ratios as predictors.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/cf35d744a942d94bff71c4bb5f5c4545cda51cea

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In Accounting

1. George Panayotov
2. K. Lim
3. Mohammad Modarres
4. R. Brooks
5. Gurdip Bakshi
6. Hao Zhou
7. Guofu Zhou
8. Lai Xu

In Economics and Econometrics

1. Hao Zhou
2. Tim Bollerslev
3. Lai Xu
4. K. Lim
5. R. Brooks
6. Gurdip Bakshi
7. George Panayotov
8. Mohammad Modarres

In Finance

1. Hao Zhou
2. Lai Xu
3. Tim Bollerslev
4. V. Todorov
5. K. Lim
6. R. Brooks
7. Gurdip Bakshi
8. George Panayotov

Citations in the corpus

• Time series momentum: Is it there? (2020, background): “Statistically, Hjalmarsson (2010) shows that when different assets have different average returns, the pooled regression, after controlling for fixed effects, suffers from a looking-forward bias because the time series demeaning of the data requires information after month t, which induces a…”
• Stock Return Predictability and Variance Risk Premia: Statistical Inference and International Evidence (2011, background): “…short-run international predictability include Rapach, Strauss, and Zhou (2013) based on lagged U.S. returns, Ang and Bekaert (2007) and Hjalmarsson (2010) based on short-term interest rates, and Bakshi, Panayotov, and Skoulakis (2011) based on the Baltic Dry Index. it is much less so…”
• Developing an approach to evaluate stocks by forecasting effective features with data mining methods (2015, methodology): “Stock pricing models: we review different stock pricing models (capital asset pricing model (CAPM), Gordon, Walter, Campbell–Shiller, and Fama–French) and obtain other important factors which effective on the risk and return prediction of stocks, see Table 2 (Kaplan & Ruback, 1995; Brealey, Myers, &”
• International Stock Return Predictability: What is the Role of the United States? (2010, unknown): “Observe that, following Solnik (1993), Ang and Bekaert (2007), and Hjalmarsson (2008), among others, the equity premium is measured in the national currency.”
• The Baltic Dry Index as a Predictor of Global Stock Returns, Commodity Returns, and Global Economic Activity (2010, methodology): “Second, given the persistence in the BDI growth rates, we compute throughout p-values following the procedures in Hodrick (1992) and Newey and West (1994), which have been shown to be robust to the presence of persistent shocks (see also, Ang and Bekaert (2007) and Wei and Wright (2009)).”
• Predictability of Returns and Cash Flows (2011, unknown): “and Hjalmarsson (2010) analyze a large cross-section of countries. Generally, they find evidence in favor of predictability by financial ratios in some countries but not others and more robust results for the predictive ability of term structure variables. In recent work, Plazzi (2009) uses the pres”
• The Evolution of Stock Market Efficiency Over Time: A Survey of the Empirical Literature (2011, background): “Fama (1991) later reclassifies the weak-form EMH as tests for return predictability, and this will include another group of literature that examines return predictability using financial variables such as the dividend–price ratio, earnings–price ratio, book-to-market ratio and various measures of th”