International Stock Return Predictability Under Model Uncertainty

Andreas Schrimpf

No 08-048, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: 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.

Keywords: Stock Return Predictability; Bayesian Model Averaging; Model Uncertainty; International Stock Markets (search for similar items in EconPapers)
JEL-codes: E44 G12 G14 G15 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-bec, nep-ecm, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/24744/1/dp08048.pdf (application/pdf)

Related works:
Journal Article: International stock return predictability under model uncertainty (2010)
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:zbw:zewdip:7358

Access Statistics for this paper

More papers in ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().