Stock Return Predictability: Is it There? [report]

Andrew Ang, Geert Bekaert
2001 unpublished
We ask whether stock returns in France, Germany, Japan, the UK and the US are predictable by three instruments: the dividend yield, the earnings yield and the short rate. The predictability regression is suggested by a present value model with earnings growth, payout ratios and the short rate as state variables. We find the short rate to be the only robust short-run predictor of excess returns, and find little evidence of excess return predictability by earnings or dividend yields across all
more » ... ields across all countries. There is no evidence of long-horizon return predictability once we account for finite sample influence. Cross-country predictability is stronger than predictability using local instruments. Finally, dividend and earnings yields predict future cashflow growth rates both in the US and in other countries. in equation (6) be constant for all and be given by:
doi:10.3386/w8207 fatcat:wp2gg4garzc5pjsidb2k3lvsvi