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Can I read Stock Return Predictability and Cyclical Movements in Valuation Ratios on EtoBox?
Stock Return Predictability and Cyclical Movements in Valuation Ratios by Deshui Yu; Difang Huang; Li Chen is a Economics, Econometrics and Finance article available to read on EtoBox.
What is Stock Return Predictability and Cyclical Movements in Valuation Ratios about?
According to present-value models, financial valuation ratios should predict future stock returns or cash flows; however, when tested empirically, these ratios show little power. This paper develops insights into stock return predictability and reconciles the contradictory findings about the information provided by financial ratios. We decompose a financial ratio into a slow-moving component that reflects the time-varying local mean, and a cyclical component that reflects the transitory deviations of the ratio from its local mean. The cyclical components deliver substantially improved in- and out-of-sample forecast gains of stock returns and cash flows relative to the original financial ratios and the historical average benchmark. Conversely, the slow-moving components fail to predict returns, and therefore they are found to disguise the predictive information contained in the financial ratios for stock returns and cash flows.
Who reads Stock Return Predictability and Cyclical Movements in Valuation Ratios?
It is typically read by researchers, students, and practitioners in Economics, Econometrics and Finance.
- Author
- Deshui Yu; Difang Huang; Li Chen
- Publisher
- Elsevier BV
- Published
- 2023
- Language
- EN
- Field
- Economics, Econometrics and Finance (Social Sciences)