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http://ssrn.com/abstract=2222008
 
 

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Forecasting Equity Returns: An Analysis of Macro vs. Micro Earnings and an Introduction of a Composite Valuation Model


Stephen Jones


String Advisors, Inc

July 6, 2014


Abstract:     
Our analysis of P/E10 and Market Value/GDP market valuation ratios reveals P/E10’s reliance on misconceptions of the differences between micro and macro earnings. Next, Kalecki’s profit function is used to identify and avoid these problems, and Market Value/GDP is presented as the metric providing better theoretical and statistical support. Based on the Market Value/GDP metric, we develop a multi-variable forecasting model which utilizes both new and prior-researched variables, the most effective of which is a demographic measure. The resulting composite model is significantly better, and forecasts considerably lower returns for the coming decade than do popular benchmark metrics.

Number of Pages in PDF File: 54

Keywords: Kalecki's profit equation, market valuation, CAPE

JEL Classification: E17

working papers series


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Date posted: February 22, 2013 ; Last revised: July 8, 2014

Suggested Citation

Jones, Stephen, Forecasting Equity Returns: An Analysis of Macro vs. Micro Earnings and an Introduction of a Composite Valuation Model (July 6, 2014). Available at SSRN: http://ssrn.com/abstract=2222008 or http://dx.doi.org/10.2139/ssrn.2222008

Contact Information

Stephen Jones (Contact Author)
String Advisors, Inc ( email )
New York, NY 10022
United States
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