Predictability of stock market returns: New evidence from developed and developing countries

Xiyang Li, Xiaoyue Chen, Bin Li, Tarlok Singh and Kan Shi

Global Finance Journal, 2022, vol. 54, issue C

Abstract: Existing studies have concentrated on predicting stock market returns mainly in the U.S. market. We focus on the predictive power of the average correlation, an indicator of co-movements of returns on industry portfolios, and estimate a number of regression models using more than 10,000 monthly observations from 18 developed and 9 developing markets. We find that the average correlation is an effective predictor in most markets. This predictive power is not driven by the state of the economy. It is also not sensitive to subsample periods, although it is stronger in the most recent period and weaker during financial crises.

Keywords: Stock market return predictability; Average correlation; Financial predictors; International stock markets (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:54:y:2022:i:c:s1044028321000223

DOI: 10.1016/j.gfj.2021.100624

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