Decomposing the predictive power of local and global financial valuation ratios
Jochen Lawrenz and
Josef Zorn
The Quarterly Review of Economics and Finance, 2018, vol. 70, issue C, 137-149
Abstract:
We examine the predictive power of global financial price-to-fundamental ratios for future stock returns in a panel of major developed countries. By disentangling global and local information, we find the global component to be at least equally important and that its importance has increased in recent decades. We further decompose the variability of valuation ratios into discount rate and cash flow driven components and find that the declining predictive power of local ratios coincides with a diminishing importance of the discount rate component. Our results underscore the relevance of global discount rate news in the time variation of local expected returns.
Keywords: International stock returns; Predictability; Financial ratios; Discount rate (search for similar items in EconPapers)
JEL-codes: F36 G12 G15 G17 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062976917304209
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:70:y:2018:i:c:p:137-149
DOI: 10.1016/j.qref.2018.04.012
Access Statistics for this article
The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty
More articles in The Quarterly Review of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().