Time varying stock return predictability: Evidence from US sectors

Massimo Guidolin, David G. McMillan and Mark Wohar ()

Finance Research Letters, 2013, vol. 10, issue 1, 34-40

Abstract: This paper argues that dividend yield stock return predictability is time-varying. We conjecture that such time-variation is linked to the business cycle. Employing monthly data for US sector portfolios we estimate 5-year rolling fixed window predictive regressions. The resulting series of time-varying predictive coefficients is regressed on industrial production growth and a recession dummy. Our results support the view of a negative relationship between predictability and output growth. That is the strength of the predictive relationship between returns and the dividend yield is stronger during contractionary periods, while during expansions the magnitude of the relationship declines.

Keywords: Predictability; Time-varying risk premia; Dividend yield; Rolling regressions (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:10:y:2013:i:1:p:34-40

DOI: 10.1016/j.frl.2012.07.002

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