Abstract

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

February 9, 2015


Abstract:     
Analyses of P/E10 and Market Value/GDP (MV/GDP) market valuation ratios reveal P/E10’s reliance on misconceptions of the differences between micro and macro earnings. Kalecki’s profit function is used to identify and avoid these problems, contest P/E10’s theoretical support, reveal MV/GDP as the metric providing better theoretical and statistical support, introduce the concept of “macro-earnings negativity”, and provide other important implications for economic theory. Based on the MV/GDP metric, we develop a multi-variable forecasting model utilizing both new and prior-researched variables, the most effective of which is a demographic measure. The resulting composite model is much more accurate than popular benchmark metrics, and, relative to popular benchmarks, forecasts considerably lower returns for the coming decade.

Number of Pages in PDF File: 55

Keywords: Kalecki's profit equation, market valuation, CAPE, Asset Price Forecast

JEL Classification: E17


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Date posted: February 22, 2013 ; Last revised: February 10, 2015

Suggested Citation

Jones, Stephen, Forecasting Equity Returns: An Analysis of Macro vs. Micro Earnings and an Introduction of a Composite Valuation Model (February 9, 2015). 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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References:  79
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