Finance Papers

Document Type

Journal Article

Date of this Version

5-2015

Publication Source

Journal of Econometrics

Volume

186

Issue

1

Start Page

74

Last Page

93

DOI

10.1016/j.jeconom.2014.05.018

Abstract

We examine the evidence on excess stock return predictability in a Bayesian setting in which the investor faces uncertainty about both the existence and strength of predictability. When we apply our methods to the dividend-price ratio, we find that even investors who are quite skeptical about the existence of predictability sharply modify their views in favor of predictability when confronted by the historical time series of returns and predictor variables. Correctly taking into account the stochastic properties of the regressor has a dramatic impact on inference, particularly over the 2000–2005 period.

Copyright/Permission Statement

© 2015. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

return predictability, bayesian statistics, model uncertainty

Embargo Date

7-11-2016

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Date Posted: 27 November 2017

This document has been peer reviewed.