Long-horizon equity return predictability
Subtitle: some new evidence for the United Kingdom
By: by Anne Vila Wetherilt and Simon Wells.
Contributors: Wells, Simon J. 1976-; Bank of England.
Series: Working paper,; no. 244; Working paper (Bank of England : Online) ;; no.244.
Publisher: Bank of England
Published: 2004
Place of publication: London
Language: eng
Format: Electronic resource
Subjects: Stock price forecasting -- Great Britain -- Mathematical models.
Description: "This paper revisits the issue of long-horizon equity return predictability for the United Kingdom in the context of the dynamic dividend discount model of Campbell and Shiller. This model attributes predictable variation in equity prices to predictable variation in expected returns. The model is supported by the theoretical asset pricing literature, which shows how the variation in expected returns can be related to investors' time-varying preferences for risk. The paper considers various empirical specifications that are consistent with the Campbell and Shiller model and finds that they are supported by UK equity data. In particular, there is weak evidence that the dividend yield has predictive ability for long-horizon excess returns. The paper also examines some of the econometric issues brought up by recent research, in particular the small-sample bias, and applies appropriate statistical corrections. It further shows that the model's predictive ability depends greatly on the sample period over which the model is estimated"--Bank of England web site.
Notes: Includes bibliographical references.
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