Is stock return predictability time-varying?

Neluka Devpura, Paresh Kumar Narayan, Susan Sunila Sharma

Research output: Contribution to journalArticleResearchpeer-review

103 Citations (Scopus)

Abstract

Using historical data (January 1927 to December 2014), this paper shows that stock return predictability is time-varying based on several well-known predictors from the literature. However, only 7 of 14 predictors exhibit this time-varying predictability pattern. For the remaining predictors, either there is no predictability or predictability is not time-dependent. We also examine the determinants of time-varying predictability. We show that (a) both expected and unexpected shocks emanating from financial variables, and (b) phases of predictability (which capture market volatility) explain return predictability.

Original languageEnglish
Pages (from-to)152-172
Number of pages21
JournalJournal of International Financial Markets, Institutions and Money
Volume52
DOIs
Publication statusPublished - Jan 2018
Externally publishedYes

Keywords

  • Heteroskedasticity
  • Predictive regression
  • Time-varying predictability

Cite this