A Closer Look at Return Predictability of the US Stock Market: Evidence from a Panel Variance Ratio Test

35 Pages Posted: 14 Feb 2013 Last revised: 19 May 2013

See all articles by Jae H. Kim

Jae H. Kim

La Trobe University - School of Economics and Finance

Abul Shamsuddin

University of Newcastle (Australia) - Newcastle Business School

Date Written: February 13, 2013

Abstract

This paper examines return predictability of the U.S. stock market using portfolios sorted by size, book-to-market ratio, and industry. A novel panel variance ratio test is proposed and employed to evaluate time-varying return predictability from 1964 to 2011. It is found that the stock returns have been highly predictable from 1964 to 1996, except for a period around the 1987 stock market crash. After 1997, the stock returns have been unpredictable overall. At a disaggregated level, size and technology have been the major contributors to cross-sectional differences in informational efficiency.

Keywords: Fama-French portfolios, Market efficiency, Monte Carlo experiment, Panel data, Wild bootstrap

JEL Classification: C12, G14

Suggested Citation

Kim, Jae H. and Shamsuddin, Abul, A Closer Look at Return Predictability of the US Stock Market: Evidence from a Panel Variance Ratio Test (February 13, 2013). Available at SSRN: https://ssrn.com/abstract=2217248 or http://dx.doi.org/10.2139/ssrn.2217248

Jae H. Kim (Contact Author)

La Trobe University - School of Economics and Finance ( email )

Department of Finance
La Trobe Business School
Bundoora, IN 3086
Australia

Abul Shamsuddin

University of Newcastle (Australia) - Newcastle Business School ( email )

City Campus East – 231
Callaghan, NSW 2308
Australia

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