A Mixed Frequency Approach for Stock Returns and Valuation Ratios
13 Pages Posted: 2 Dec 2019
Date Written: November 17, 2019
We employ a Mixed-Frequency VAR to study the effect of four valuation ratios (the price-dividend ratio, the price-earnings ratio, the Cyclically Adjusted Price Earnings Ratio and the Total Return Cyclically Adjusted Price Earnings Ratio) on the US stock market. We quantify the interaction between high and low frequency data. We show that all valuation ratios (observed at a monthly frequency) significantly affect stock market returns (observed at a daily frequency) at both long and short horizons.
Keywords: Stock Index Returns; Valuation Ratios; MF-VAR; Impulse Response Analysis
JEL Classification: G1, C12; C13
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