Does Stock Return Predictability Imply Improved Asset Allocation and Performance? Evidence from the U.S. Stock Market (1954–2002)

Puneet Handa
Additional contact information
Puneet Handa: University of Iowa

The Journal of Business, 2006, vol. 79, issue 5, pages 2423-2468

Abstract: This paper provides evidence on the economic significance of the predictability in U.S. stock returns using a real-time asset allocation framework. We examine the performance of a Bayesian investor who relies on conditioning information (dividend yield, T-bill yield, default spread, and term spread) to forecast future returns and contrast it with that of an otherwise identical investor who believes in i.i.d. returns. We find that the relative performance of the information-based strategy is unstable over time, being noticeably poor during 1989–2002. In marked contrast, the strategy performs significantly better when it relies on a model-based approach based on the CAPM.

Date: 2006
References: Add references at CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.journals.uchicago.edu/cgi-bin/resolve?JB790506 main text (application/pdf)
Access to the online full text or PDF requires a subscription.

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: http://EconPapers.repec.org/RePEc:ucp:jnlbus:v:79:y:2006:i:5:p:2423-2468

Access Statistics for this article

More articles in The Journal of Business from University of Chicago Press
Series data maintained by Journals Division ().