Efficient tests of stock return predictability
| Title: | Efficient tests of stock return predictability |
| Author: |
Campbell, John; Yogo, Motohiro
Note: Order does not necessarily reflect citation order of authors. |
| Citation: | Campbell, John Y., and Motohiro Yogo. 2006. Efficient tests of stock return predictability. Journal of Financial Economics 81(1): 27-60. |
| Full Text & Related Files: |
campbellssrn_stockreturn.pdf (439.7Kb; PDF) 
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| Abstract: | Conventional tests of the predictability of stock returns could be invalid, that is reject the null too frequently, when the predictor variable is persistent and its innovations are highly correlated with returns. We develop a pretest to determine whether the conventional t-test leads to invalid inference and an efficient test of predictability that corrects this problem. Although the conventional t-test is invalid for the dividend–price and smoothed earnings–price ratios, our test finds evidence for predictability. We also find evidence for predictability with the short rate and the long-short yield spread, for which the conventional t-test leads to valid inference. |
| Published Version: | http://dx.doi.org/10.1016/j.jfineco.2005.05.008 |
| Other Sources: | http://dx.doi.org/10.2139/ssrn.343782 |
| Terms of Use: | This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA |
| Citable link to this page: | http://nrs.harvard.edu/urn-3:HUL.InstRepos:3122601 |
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Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
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