Economics, Econometrics and Finance
4 years ago

Stock Market Study Challenges Belief in Always Positive Returns

Book-to-Market, Dividend Yield, and Expected Market Returns: A Time-Series Analysis
S.P. Kothari, Jay Shanken

Paper Summary

Related papers

Economics, Econometrics and Finance
4 years ago

Equity-heavy new issues predict market downturns, challenging efficient market theory.

Asset Pricing
Value-based Management
Corporate Governance
Business, Management and Accounting
8 years ago

Detrended wealth predicts stock returns better than popular forecasting variables.

Retirement Planning
Generational Studies
Financial Systems
Economics, Econometrics and Finance
8 years ago

Stock market behavior linked to consumption habits, impacting prices and volatility.

Monetary Models
Asset Pricing
Econophysics

The article shows that dividend yield and book-to-market ratios can predict stock returns over time. Book-to-market is more reliable overall, while dividend yield is stronger in recent years. The data suggests that sometimes expected returns can be negative, challenging the idea of market efficiency. However, evidence from after 1940 supports the belief that returns are usually positive.