Full metadata record
DC Field | Value | Language |
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dc.contributor.author | Lettau, Martin | - |
dc.contributor.author | Van Nieuwerburgh, Stijn | en |
dc.date.accessioned | 2008-05-25T18:32:52Z | - |
dc.date.available | 2008-05-25T18:32:52Z | - |
dc.date.issued | 2006-04-27 | - |
dc.identifier.uri | http://hdl.handle.net/2451/26374 | - |
dc.description.abstract | Evidence of stock return predictability by financial ratios is still controversial, as documented by inconsistent results for in-sample and out-of-sample regressions and by substantial parameter instability. This paper shows that these seemingly incompatible results can be reconciled if the assumption of a fixed steady-state mean of the economy is relaxed. We find strong empirical evidence in support of shifts in the steady-state and propose simple methods to adjust financial ratios for such shifts. The in-sample forecasting relationship of adjusted price ratios and future returns is statistically significant and stable over time. In real-time,however, changes in the steady-state make the in-sample return forecast ability hard to exploit out-of-sample. The uncertainty of estimating the size of steady-state shifts rather than the estimation of their dates is responsible for the difficulty of forecasting stock returns in real-time. Our conclusions hold for a variety of financial ratios and are robust to changes in the econometric technique used to estimate shifts in the steady-state. | en |
dc.language.iso | en_US | en |
dc.relation.ispartofseries | FIN-06-013 | en |
dc.title | Reconciling the Return Predictability Evidence | en |
dc.type | Working Paper | en |
Appears in Collections: | Finance Working Papers |
Files in This Item:
File | Description | Size | Format | |
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FIN-06-013.pdf | 385.72 kB | Adobe PDF | View/Open |
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