Does stock market volatility forecast returns
Subtitle: the international evidence
By: Hui Guo.
Contributors: Federal Reserve Bank of St. Louis.
Series: Working paper ;; 2003-012B; Working paper (Federal Reserve Bank of St. Louis : Online) ;; 2003-012B.
Publisher: Federal Reserve Bank of St. Louis
Published: 2003
Place of publication: [St. Louis, Mo.]
Language: eng
Format: Electronic resource
Subjects: Capital assets pricing model.; Stocks -- Prices -- Mathematical models.
Description: "We use daily price indices obtained from the Morgan Stanley Capital International to construct realized volatility for 18 individual stock markets, including the US, and the world stock market.  In contrast with the CAPM, we find that volatility by itself does not forecast excess returns in most countries; however, it becomes a significant predictor when combined with the US consumption-wealth ratio, which, as argued by recent authors, is a proxy for the liquidity premium.  The latter result mainly reflects the fact that volatility in international stock markets co-moves closely with the US stock volatility: The former loses its predictive power if we also include the latter in the forecasting equation.  Moreover, the out-of-sample forecast of the US or the world stock market returns appears to be a good proxy for conditional returns of international stock markets.  Our results thus indicate that (1) volatility is one of important determinants of the equity premium and (2) international stock markets are integrated"--Federal Reserve Bank of St. Louis web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/28/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.