Money growth and aggregate stock returns

Tobias Böing and Georg Stadtmann

No 390, Discussion Papers from European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics

Abstract: We empirically evaluate the predictive power of money growth measured by M2 for stock returns of the S&P 500 index. We use monthly US data and predict multiperiod returns over 1, 3, and 5 years with long-horizon regressions. In-sample regressions show that money growth is useful for predicting returns. Higher recent money growth has a significantly negative effect on subsequent returns of the S&P 500. An out-of-sample analysis shows that a simple model with money growth as a single predictor performs as goods as the constant expected returns model, while models with several predictor variables perform worse than those simple models.

Keywords: Money growth; M2; Stock Market; S&P 500; Stock Returns; Out-of-Sample (search for similar items in EconPapers)
JEL-codes: C58 E44 E47 G14 G17 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-fmk, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:euvwdp:390

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