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. ISSN 0927-5398

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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
Subjects:	H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions
Divisions:	Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Journal of Empirical Finance
Publisher:	Elsevier
ISSN:	0927-5398
Official Date:	June 2010
Volume:	Vol.17
Number:	No.3
Number of Pages:	19
Page Range:	pp. 313-331
Identification Number:	10.1016/j.jempfin.2009.10.003
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
URI:	http://wrap.warwick.ac.uk/id/eprint/5823

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