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Title: Should stock returns predictability be ‘hooked on’ long‐horizon regressions?
Authors: Dergiades, Theologos
Pouliasis, Panos K.
Type: Article
Subjects: FRASCATI::Social sciences::Economics and Business::Finance
FRASCATI::Social sciences::Economics and Business::Econometrics
Keywords: frequency domain
long-horizon predictability
stock returns
Issue Date: 24-Jan-2021
Source: International Journal of Finance & Economics
Abstract: This paper re-examines stock returns predictability over the business cycle using price-dividend and price-earnings valuation ratios as predictors. Unlike prior studies that habitually implement long-horizon/predictive regressions, we conduct a testing framework in the frequency domain. Predictive regressions support no predictability; in contrast, our results in the frequency domain verify significant predictability at medium and long horizons. To robustify predictability patterns, the analysis is executed repetitively for fixed-length rolling samples of various sizes. Overall, the stock returns are predictable for wavelengths higher than 5 years. This finding is robust and independent of time, window size and predictor.
ISSN: 1076-9307
Other Identifiers: 10.1002/ijfe.2446
Appears in Collections:Department of International and European Studies

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