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A century of equity premium predictability and the consumption-wealth ratio: an international perspective
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Della Corte, Pasquale, Sarno, Lucio and Valente, Giorgio (2010) A century of equity premium predictability and the consumption-wealth ratio: an international perspective. Journal of Empirical Finance, Vol.17 (No.3). pp. 313-331. doi:10.1016/j.jempfin.2009.10.003 ISSN 0927-5398.
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Official URL: http://dx.doi.org/10.1016/j.jempfin.2009.10.003
Abstract
This paper re-examines the predictive ability of the consumption-wealth ratio (cay) on the equity premium using hand-collected annual data spanning one century for four major economies. In addition to statistical tests of out-of-sample forecast accuracy, we measure the economic value of the predictive information in cay in a stylized asset allocation strategy. We find that cay does not contain predictive power prior to World War II, when a structural break occurs for all countries. In the postwar period, while statistical tests provide mixed evidence, economic criteria uncover substantial predictive power in cay, further enhanced when allowing for economically meaningful restrictions. (C) 2009 Elsevier B.V. All rights reserved.
| Item Type: | Journal Article | ||||
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| Subjects: | H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions |
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | Journal of Empirical Finance | ||||
| Publisher: | Elsevier | ||||
| ISSN: | 0927-5398 | ||||
| Official Date: | June 2010 | ||||
| Dates: |
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| Volume: | Vol.17 | ||||
| Number: | No.3 | ||||
| Number of Pages: | 19 | ||||
| Page Range: | pp. 313-331 | ||||
| DOI: | 10.1016/j.jempfin.2009.10.003 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access |
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