International Stock Return Predictability Under Model Uncertainty

Arbeitspapier

This paper examines return predictability when the investor is uncertain about the right state variables. A novel feature of the model averaging approach used in this paper is to account for finite-sample bias of the coefficients in the predictive regressions. Drawing on an extensive international dataset, we find that interest-rate related variables are usually among the most prominent predictive variables, whereas valuation ratios perform rather poorly. Yet, predictability of market excess returns weakens substantially, once model uncertainty is accounted for. We document notable differences in the degree of in-sample and out-of-sample predictability across different stock markets. Overall, these findings suggests that return predictability is not a uniform and a universal feature across international capital markets.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 08-048

Classification and Topics

• Classification: Wirtschaft ; Information and Market Efficiency; Event Studies; Insider Trading ; International Financial Markets ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financial Markets and the Macroeconomy
• Subject: Stock Return Predictability ; Bayesian Model Averaging ; Model Uncertainty ; International Stock Markets ; Börsenkurs ; Kapitalertrag ; Wertpapieranalyse ; Prognoseverfahren ; Bayes-Statistik ; Regression ; Aktienmarkt ; Internationaler Finanzmarkt ; Zinsdifferenz ; Schätzung ; Frankreich ; Deutschland ; Japan ; Großbritannien ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schrimpf, Andreas
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/24744
• Last update: 10.03.2025, 11:44 AM CET