The Good News and the Bad News about Long-run Stock Market Returns

Donald Robertson and Stephen Wright

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: If stock prices followed a random walk, uncertainty about future stock prices would be so great that the observed bias towards equities in long-term investment portfolios would be surprising. The good news is that if, as a growing body of research suggests, there is even a weak tendency for stationary valuation indicators to predict future stock prices, long-run returns can become markedly more predictable. This is illustrated in a cointegrating VAR, with Tobin?s q as one of the cointegrating relations. The bad news is a corollary of the good news: q and most other indicators point to massive at the end of 1997, and hence the prospect of weak stock prices well into the next century.

Keywords: Stock prices; Random walk; Cointegration; Vector autoregressions; Tobin's q; Efficiency (search for similar items in EconPapers)
JEL-codes: C32 C52 E44 G10 G14 (search for similar items in EconPapers)
Date: 1998-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:cam:camdae:9822

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().