Time-Varying Short-Horizon Return Predictability

45 Pages Posted: 6 Mar 2008 Last revised: 31 Jan 2011

See all articles by Sam James Henkel

Sam James Henkel

affiliation not provided to SSRN

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Federico Nardari

University of Melbourne - Department of Finance

Date Written: January 24, 2010

Abstract

In the G7 countries, the short-horizon performance of aggregate return predictors such as the dividend yield and the short rate appears nonexistent during business cycle expansions but sizable during contractions. This phenomenon appears related to countercyclical risk premiums as well as the time-variation in the dynamics of predictors. Our empirical model outperforms the historical average out-of-sample in the US, but the results throughout the G7 are mixed.

Keywords: Stock Return Predictability, Asset Pricing, Business Fluctuations, Financial Markets and the Macro economy

JEL Classification: E32, E44, G11, G12

Suggested Citation

Henkel, Sam James and Martin, J. Spencer and Nardari, Federico, Time-Varying Short-Horizon Return Predictability (January 24, 2010). Journal of Financial Economics (JFE), Vol. 99, No. 3, 2011, AFA 2008 New Orleans Meetings Paper, EFA 2008 Athens Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1101944

Sam James Henkel (Contact Author)

affiliation not provided to SSRN

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Federico Nardari

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

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