A closer look at return predictability of the US stock market: evidence from new panel variance ratio tests

Title: A closer look at return predictability of the US stock market: evidence from new panel variance ratio tests
Creator: Kim, Jae H.; Shamsuddin, Abul
Relation: Quantitative Finance Vol. 15, Issue 9, p. 1501-1514
Publisher Link: http://dx.doi.org/10.1080/14697688.2014.1002419
Publisher: Routledge
Resource Type: journal article
Date: 2015
Description: This paper examines the return predictability of the US stock market using portfolios sorted by size, book-to-market ratio and industry. We use novel panel variance ratio tests, based on the wild bootstrap proposed in this paper, which exhibit desirable size and power properties in small samples. We have found evidence that stock returns have been highly predictable from 1964 to 1996, except for a period leading to the 1987 crash and its aftermath. After 1997, stock returns have been unpredictable overall. At a disaggregated level, we find evidence that large-cap portfolios have been priced more efficiently than small- or medium-cap portfolios; and that the stock returns from high-tech industries are far less predictable than those from non-high-tech industries.
Subject: Fama–French portfolios; market efficiency; Monte Carlo experiment; panel data; wild bootstrap
Identifier: http://hdl.handle.net/1959.13/1316650
Identifier: uon:23239
Identifier: ISSN:1469-7688
Language: eng
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