Weak-Form and Semi-Strong-Form Stock Return Predictability Revisited

This paper makes indirect inference about the time variation in expected stock returns by comparing unconditional sample variances to estimates of expected conditional variances. The evidence reveals more predictability as more information is used, and there is no evidence that predictability has diminished in recent years. Semi-strong-form evidence suggests that time variation in expected returns remains economically important.

[1]  Daniel B. Nelson.  CONDITIONAL HETEROSKEDASTICITY IN ASSET RETURNS: A NEW APPROACH , 1991 .

[2]  J. Cochrane,et al.  Volatility Tests and Efficient Markets: A Review Essay , 1991 .

[3]  A. Lo,et al.  THE ECONOMETRICS OF FINANCIAL MARKETS , 1996, Macroeconomic Dynamics.

[4]  Gautam Kaul,et al.  Time-Variation in Expected Returns , 1988 .

[5]  Daniel B. Nelson.  ARCH models as diffusion approximations , 1990 .

[6]  Jacob Boudoukh,et al.  Is the ex ante risk premium always positive?: A new approach to testing conditional asset pricing models , 1993 .

[7]  C. Nelson,et al.  Predictable Stock Returns: The Role of Small Sample Bias , 1993 .

[8]  D. H. Goldenberg,et al.  On Estimating the Expected Rate of Return in Diffusion Price Models with Application to Estimating the Expected Return on the Market , 1996, Journal of Financial and Quantitative Analysis.

[9]  T. Andersen.  THE ECONOMETRICS OF FINANCIAL MARKETS , 1998, Econometric Theory.

[10]  Sergei Sarkissian,et al.  Spurious Regressions in Financial Economics? , 2002 .

[11]  Luis M. Viceira,et al.  Spreading the Wealth Around: Reflections Inspired by Joe the Plumber , 1998 .

[12]  R. Stambaugh,et al.  On the Predictability of Stock Returns: An Asset-Allocation Perspective , 1995 .

[13]  Chris Kirby,et al.  The Economic Value of Volatility Timing , 2000 .

[14]  A. Lo,et al.  Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test , 1987 .

[15]  E. Fama,et al.  Permanent and Temporary Components of Stock Prices , 1988, Journal of Political Economy.

[16]  A. Craig MacKinlay,et al.  Order Imbalances and Stock Price Movements on October 19 and 20, 1987 , 1989 .

[17]  E. Fama.  EFFICIENT CAPITAL MARKETS: A REVIEW OF THEORY AND EMPIRICAL WORK* , 1970 .

[18]  F. Douglas Foster,et al.  Assessing goodness-of-fit of asset pricing models: The distribution of the maximal R2 , 1997 .

[19]  Luis M. Viceira,et al.  Who Should Buy Long-Term Bonds? , 1999 .

[20]  W. Ferson,et al.  Weak and Semi-Strong Form Stock Return Predictability, Revisited , 2004 .

[21]  Daniel B. Nelson,et al.  Filtering and Forecasting with Misspecified Arch Models Ii: Making the Right Forecast with the Wrong Model , 1992 .

[22]  R. Stambaugh,et al.  Predictive Regressions , 1999 .

[23]  Yacine Ait-Sahalia,et al.  The Effects of Random and Discrete Sampling When Estimating Continuous-Time Diffusions , 2002 .

[24]  A. Craig MacKinlay,et al.  Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test , 1988 .

[25]  A. Lo,et al.  Data-Snooping Biases in Tests of Financial Asset Pricing Models , 1989 .

[26]  R. C. Merton,et al.  On Estimating the Expected Return on the Market: An Exploratory Investigation , 1980 .

[27]  E. Fama,et al.  BUSINESS CONDITIONS AND EXPECTED RETURNS ON STOCKS AND BONDS , 1989 .

[28]  G. Schwert.  Indexes of U.S. Stock Prices from 1802 to 1987 , 1990 .

[29]  L. Hansen.  Large Sample Properties of Generalized Method of Moments Estimators , 1982 .

[30]  M. Richardson,et al.  The Statistics Of Long-Horizon Regressions Revisited , 1994 .

[31]  Dean P. Foster,et al.  Filtering and Forecasting with Misspecified Arch Models Ii: Making the Right Forecast with the Wrong Model , 1992 .

[32]  W. Ferson,et al.  Spurious Regressions in Financial Economics ? 1395 , 1987 .

[33]  R. Roll.  A Simple Implicit Measure of the Effective Bid‐Ask Spread in an Efficient Market , 1984 .

[34]  A Nonrandom Walk Down Wall Street : Recent Advances in Financial Technology , 1999 .