Stock Return Predictability: Evidence Across US Industries

Quynh Thi Thuy Pham

Finance Research Letters, 2021, vol. 38, issue C

Abstract: This paper revisits the return predictability pattern in the stock market and investigates whether this pattern is valid across US industries. Using data over the last 91 years, I confirm that value-weighted stock returns are predictable. Moreover, my work establishes a predictability heterogeneity over US industries, in which stock returns are more predictable in sectors with a large average firm size. In light of the dividend-smoothing hypothesis, I show that differences in dividend smoothness potentially drive cross-industry predictive patterns. The findings further suggest that dividend yields are not good proxies for predicting returns in some small industries.

Keywords: return predictability; dividend growth predictability; industry portfolios; dividend smoothing (search for similar items in EconPapers)
JEL-codes: C22 G11 G12 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:38:y:2021:i:c:s1544612320302646

DOI: 10.1016/j.frl.2020.101531

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