A comprehensive look at the empirical performance of equity premium prediction
By: Amit Goval, Ivo Welch.
Contributors: Welch, Ivo.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10483; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10483.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Stock price forecasting.
Description: "Given the historically high equity premium, is it now a good time to invest in the stock market? Economists have suggested a whole range of variables that investors could or should use to predict: dividend price ratios, dividend yields, earnings-price ratios, dividend payout ratios, net issuing ratios, book-market ratios, interest rates (in various guises), and consumption-based macroeconomic ratios (cay).  The typical paper reports that the variable predicted well in an *in-sample* regression, implying forecasting ability.  Our paper explores the *out-of-sample* performance of these variables, and finds that not a single one would have helped a real-world investor outpredicting the then-prevailing historical equity premium mean.  Most would have outright hurt.  Therefore, we find that, for all practical purposes, the equity premium has not been predictable, and any belief about whether the stock market is now too high or too low has to be based on theoretical prior, not on the empirically variables we have explored"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 1/12/2005.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.