Expected Returns Across Time Scales

58 Pages Posted: 22 Oct 2010

See all articles by Christophe Boucher

Christophe Boucher

Université Paris I Panthéon-Sorbonne - CES/CNRS

Bertrand B. Maillet

EMLyon Business School (Paris Campus)

Date Written: May 21, 2010

Abstract

This paper studies the role of fluctuations in the aggregate price-earning ratio at different time scales for predicting stock returns and explore the channels through which returns are predicted. Using U.S. quarterly and international monthly data, we find that cycles in the price-earning ratio are strong and better predictors of future returns at short and intermediate horizons than the aggregate price-earning ratio and several other popular forecasting variables. Moreover, this predictability is economically profitable. The proposed method, based on a wavelet multiscaling framework, explicitly accounts for the variations at different time scales in expected cash-flow growth and expected returns.

Keywords: Financial Ratios, Return Predictability, Cycles, Wavelets

JEL Classification: G12, G17, C22

Suggested Citation

Boucher, Christophe and Maillet, Bertrand B., Expected Returns Across Time Scales (May 21, 2010). Paris December 2010 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=1695499

Christophe Boucher (Contact Author)

Université Paris I Panthéon-Sorbonne - CES/CNRS ( email )

106 bv de l'Hôpital
Paris, 75013
France

Bertrand B. Maillet

EMLyon Business School (Paris Campus) ( email )

23 Avenue Guy de Collongue
Ecully, 69132
France

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