Predicting short-to-medium horizon returns

2021 ◽  
pp. 251-272
Author(s):  
Jesper Rangvid
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Return ◽  
Return Predictability ◽  
Yield Spread ◽  
Dividend Yield ◽  
Important Lesson ◽  
Stock Return Predictability ◽  
Long Run ◽  
Short Run

This chapter lays out what we know about stock return predictability on the short-to-medium horizon. It recognizes that most of the fluctuations in the stock market are unpredictable, but characterizes those that are. Another important lesson of this chapter is that stock markets are very volatile in the short run but appears to be less so in the long run. Paradoxically, this implies that it looks as if we can say a little more about the future movements in the stock market when dealing with the longer run (several years). From today until tomorrow, or next week, we can say very little. The chapter illustrates how stock returns are somewhat predictable by indicators such as the yield spread and the dividend yield.

New Methods for Inference in Long-Horizon Regressions

2011 ◽  
Vol 46 (3) ◽  
pp. 815-839 ◽  
Author(s):  
Erik Hjalmarsson
Keyword(s):  
Stock Return ◽  
Ordinary Least Squares ◽  
Return Predictability ◽  
Standard Errors ◽  
Test Procedures ◽  
Stock Return Predictability ◽  
New Methods ◽  
Predictive Regressions ◽  
Long Run ◽  
Short Run

AbstractI develop new results for long-horizon predictive regressions with overlapping observations. I show that rather than using autocorrelation robust standard errors, the standard t-statistic can simply be divided by the square root of the forecasting horizon to correct for the effects of the overlap in the data. Further, when the regressors are persistent and endogenous, the long-run ordinary least squares (OLS) estimator suffers from the same problems as the short-run OLS estimator, and it is shown how similar corrections and test procedures as those proposed for the short-run case can also be implemented in the long run. An empirical application to stock return predictability shows that, contrary to many popular beliefs, evidence of predictability does not typically become stronger at longer forecasting horizons.

Multivariate Causal Estimates of Dividend Yields, Price Earning Ratio and Expected Stock Returns: Malaysian Evidence

GIS Business ◽  
2019 ◽  
Vol 14 (1) ◽  
pp. 11-20
Author(s):  
Faizatul Syuhada Abdul Fatah ◽  
Wan Mansor Wan Mahmood
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Predictive Power ◽  
Investment Strategies ◽  
Dividend Yield ◽  
Causality Test ◽  
Stock Market Returns ◽  
Long Run ◽  
Price Earnings Ratio ◽  
Short Run

The study examines the relationship among Malaysian’s market stock return, dividend yields and price earnings ratio. Specifically, it examines the existence of long-run and short-run relationship and also their predictive power (causality) between and among market stock return, dividend yields and price earnings. Using the monthly data from 1989-2005, the study finds that all these fundamental variables have a strong long run relationship. As for the short run relationship, the results show significant positive predictive power from dividend yield to stock return and significant negative relation from stock returns to price earning ratios. In addition, applying multivariate causality test, the results show that both dividend yields and price earning ratio Granger cause (predict) the stock return. Similar results are found from stock returns and P/E ratio to dividend yield, as well as from dividend yield and stock returns to P/E ration but with lesser magnitude. Thus, fundamental variables are an important source of information in determining stock market returns and useful to investors and other market participants in deciding their investment strategies. Keywords: Stock return, dividend yield, price earning ratio, Malaysian market.

scholarly journals Stock Return Predictability with Financial Ratios: An Empirical Study of Listed Manufacturing Companies in Sri Lanka

2018 ◽  
Vol 8 (4) ◽  
pp. 471
Author(s):  
Saradhadevi Anandasayanan
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Predictive Power ◽  
Stock Exchange ◽  
Return Predictability ◽  
Financial Ratios ◽  
Series Data ◽  
Manufacturing Companies ◽  
Dividend Yield ◽  
Stock Return Predictability

This study attempts to investigate financial ratios’ predictive power, using the yearly time series data during the period of 2012-2017 for 33 listed manufacturing companies in Colombo Stock Exchange. This study specifically identifies the financial ratios, which are acknowledged as the predictors of stock returns in the share market, to test the stock return predictability. The financial ratios include the ratio of dividend yield, earnings per share, and earnings yield which are most useful and effective on stock return predictability in order to cover a wide range of predictions which have been used by all most all the previous researches. The stock return predictability is analyzed by regressing the dividend yield, earning per share and earning yield respectively on the yearly stock returns from 2012 to 2017. The results show high predictability power, since the R2-value is high and the coefficients are very significant and autocorrelation corrected standard errors. The results reveal that the three ratios hold a somehow predictive power regarding stock returns of the Listed Manufacturing Companies in Colombo Stock Exchange.

scholarly journals The Stock Market and Exchange Rates in Five South Asian Countries

2017 ◽  
Vol 18 (1) ◽  
pp. 102 ◽  
Author(s):  
Firmansyah Firmansyah ◽  
Shanty Oktavilia
Keyword(s):  
Exchange Rate ◽  
Financial Crisis ◽  
Stock Market ◽  
Exchange Rates ◽  
Stock Returns ◽  
Stock Prices ◽  
Stock Return ◽  
The Philippines ◽  
Short Run ◽  
The Exchange Rate

The composite price index and return of stocks are the important indicators, both as a measure of the company's portfolio performance, as well as an indicator of macroeconomic health and the aggregate investment. In addition, the stock prices are also influenced by macroeconomic variables and one of the most important is the exchange rates. The objective of this study is to determine the behavior of exchange rate affects the stock returns in Southeast Asia, pre and post of the 2008 world financial crisis. By employing the daily stock market return in Indonesia, Malaysia, the Philippines, Thailand, and Singapore more than seventeen years from 1 September 1999 to 31 March 2017, this study utilizes Engle-Granger error correction model and cointegration approach to investigate and compare the long and short run of the structural effect of the exchange rates on stock returns. To differentiate the behavior of variables between pre and post occurrence of 2008 world financial crisis, the estimation of the model is divided into two periods. This study finds that the exchange rate growth influence the stock returns in the long and short run, and proves that the cointegration between the two variables exist in all countries. The study has the implication that the exchange rate, which the one of the fundamental measures of a country's macroeconomic health, is an important determinant of influencing stock return, even its effects are responded by the stock return in one day.

scholarly journals Are Kuwaiti Stock Returns Affected by Fluctuations in Oil Prices?

2020 ◽  
Vol 11 (6) ◽  
pp. 1
Author(s):  
Salem Alshihab ◽  
Nayef AlShammari
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Oil Prices ◽  
Market Returns ◽  
Macroeconomic Factors ◽  
Stock Market Returns ◽  
Long Run ◽  
Short Run ◽  
The Impact ◽  
Adf Test

This paper examines the impact of fluctuations in the price of oil on Kuwaiti stock market returns for the month-to-month period of 2000 to 2020. The Augmented Dickey-Fuller (ADF) test for stationarity, the error correction model (ECM), and various cointegration test techniques were used to examine the estimated model. In an oil-based economy like Kuwait, the exposure to oil prices seems to affect the performance of the country’s stock market. Our main findings related to the long run showed that the price of oil is cointegrated with stock market returns. Interestingly, our ECM examination confirmed that changes in Kuwaiti stock market returns are only affected by oil price fluctuations in the short run. Further strategies are needed to better stabilize Kuwait’s capital market. This equilibrium can be achieved by pursuing more stability in other macroeconomic factors and providing a solid legal independence for the country’s financial market.

scholarly journals The joint dynamics of investor beliefs and trading during the COVID-19 crash

2021 ◽  
Vol 118 (4) ◽  
pp. e2010316118
Author(s):  
Stefano Giglio ◽  
Matteo Maggiori ◽  
Johannes Stroebel ◽  
Stephen Utkus
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Real Economy ◽  
Market Outcomes ◽  
Stock Market Crash ◽  
Long Run ◽  
Retail Investors ◽  
Joint Dynamics ◽  
Short Run ◽  
Investor Expectations

We analyze how investor expectations about economic growth and stock returns changed during the February−March 2020 stock market crash induced by the COVID-19 pandemic, as well as during the subsequent partial stock market recovery. We surveyed retail investors who are clients of Vanguard at three points in time: 1) on February 11–12, around the all-time stock market high, 2) on March 11–12, after the stock market had collapsed by over 20%, and 3) on April 16–17, after the market had rallied 25% from its lowest point. Following the crash, the average investor turned more pessimistic about the short-run performance of both the stock market and the real economy. Investors also perceived higher probabilities of both further extreme stock market declines and large declines in short-run real economic activity. In contrast, investor expectations about long-run (10-y) economic and stock market outcomes remained largely unchanged, and, if anything, improved. Disagreement among investors about economic and stock market outcomes also increased substantially following the stock market crash, with the disagreement persisting through the partial market recovery. Those respondents who were the most optimistic in February saw the largest decline in expectations and sold the most equity. Those respondents who were the most pessimistic in February largely left their portfolios unchanged during and after the crash.

Cointegration of Asian Stock Markets: Empirical Evidence from India

2016 ◽  
Vol 6 (2) ◽  
Author(s):  
Beeralaguddada Srinivasa Veerappa
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Markets ◽  
Causality Test ◽  
Long Run ◽  
Equilibrium Relationship ◽  
Short Run ◽  
Auto Regressive ◽  
Global Stock Markets ◽  
Indian Stock Market

At present stock return is significantly related to other global stock markets. The present paper empirically investigates the short run and long run equilibrium relationship between the stock market of India, Japan Hong Kong, Singapore, Malaysia, China, and Australia monthly data during January 1995 to December 2013. Researcher employs correlation test, multivariate co-integration framework, Vector Auto Regressive error-correction model and Granger causality test with reference to financial up evils in Asia and world viz., Asian crisis (1997/98), financial crisis (2008) Inflation conditions, Natural disasters, financial up evils etc. of long run relationship. Results find that the Indian stock market return is significantly co-integrated with long run and short run situations/causalities in Asian Stock returns.

Effect of Terrorism Financing on Selected Global Indices

2021 ◽  
pp. 183-205
Author(s):  
Laila Memdani ◽  
Tasiu Tijjani Kademi ◽  
Abdul Rafay
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Ardl Model ◽  
Global Indices ◽  
Stock Indices ◽  
Long Run ◽  
Terrorism Financing ◽  
Short Run ◽  
The Impact ◽  
Global Stock

Investment is a part and parcel of life. There are various avenues to invest and one of those is the stock market. But the decision of the investor depends on various factors and one of these factors is terrorism. The chapter focuses on the long and short-run association (LSA) and the influence of terrorism on major global stock indices and gold. The Paris attacks of 2015 are taken as a base, and the ARDL model is used to study the long and short-run impact on the selected stock indices. An attempt is also made to study the impact of terrorism on the stock returns using the Miller and Modigliani model. The study reveals a short-run impact of terrorism on the five selected global indices, but there is no long-run impact.

scholarly journals Volatility risk and stock return predictability on global financial crises

2017 ◽  
Vol 7 (1) ◽  
pp. 33-66 ◽  
Author(s):  
Worawuth Kongsilp ◽  
Cesario Mateus
Keyword(s):  
Stock Returns ◽  
Financial Crises ◽  
Stock Return ◽  
Return Predictability ◽  
Idiosyncratic Volatility ◽  
Stock Return Predictability ◽  
Volatility Risk ◽  
Content Type ◽  
Bull Markets ◽  
Recent Financial Crisis

Purpose The purpose of this paper is to investigate the role of volatility risk on stock return predictability specified on two global financial crises: the dot-com bubble and recent financial crisis. Design/methodology/approach Using a broad sample of stock options traded on the American Stock Exchange and the Chicago Board Options Exchange from January 2001 to December 2010, the effect of different idiosyncratic volatility forecasting measures are examined on future stock returns in four different periods (Bear and Bull markets). Findings First, the authors find clear and robust empirical evidence that the implied idiosyncratic volatility is the best stock return predictor for every sub-period both in Bear and Bull markets. Second, the cross-section firm-specific characteristics are important when it comes to stock returns forecasts, as the latter have mixed positive and negative effects on Bear and Bull markets. Third, the authors provide evidence that short selling constraints impact negatively on stock returns for only a Bull market and that liquidity is meaningless for both Bear and Bull markets after the recent financial crisis. Practical implications These results would be helpful to disclose more information on the best idiosyncratic volatility measure to be implemented in global financial crises. Originality/value This study empirically analyses the effect of different idiosyncratic volatility measures for a period that involves both the dotcom bubble and the recent financial crisis in four different periods (Bear and Bull markets) and contributes the existing literature on volatility measures, volatility risk and stock return predictability in global financial crises.

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