On the Predictability of Stock Returns: An Asset-Allocation Perspective

41 Pages Posted: 20 Jul 2000 Last revised: 30 Aug 2010

See all articles by Shmuel Kandel (deceased)

Shmuel Kandel (deceased)

Deceased

Robert F. Stambaugh

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: January 1995

Abstract

The predictability of monthly stock returns is investigated from the perspective of a risk-averse investor who uses the data to update initially vague beliefs about the conditional distribution of returns. The optimal stocks-versus-cash allocation of the investor can depend importantly on the current value of a predictive variable, such as dividend yield, even though a null hypothesis of no predictability might not be rejected at conventional significance levels. When viewed in this economic context, the empirical evidence indicates a strong degree of predictability in monthly stock returns.

Suggested Citation

Kandel (deceased), Shmuel and Stambaugh, Robert F., On the Predictability of Stock Returns: An Asset-Allocation Perspective (January 1995). NBER Working Paper No. w4997. Available at SSRN: https://ssrn.com/abstract=226595

Robert F. Stambaugh (Contact Author)

University of Pennsylvania - The Wharton School ( email )

The Wharton School, Finance Department
University of Pennsylvania
Philadelphia, PA 19104-6367
United States
215-898-5734 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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