Developed markets’ business cycle dynamics and time-variation in emerging markets’ asset returns

Thomas Nitschka

Journal of Banking & Finance, 2014, vol. 42, issue C, 76-82

Abstract: This paper empirically studies the predictability of emerging markets’ stock returns by business cycle variables and the role of developed markets’ business cycle dynamics in this respect. The evidence shows that the link between business cycles and future stock market returns among emerging markets is considerably weaker than among developed markets. By contrast, I find strong evidence of stock return predictability by the respective country’s dividend-price ratio. This latter finding could reflect that variation in dividend-price ratios potentially reflects both the temporary impact of “hot money” inflows on emerging markets’ asset prices and rational expectations of future returns.

Keywords: Business cycle risk; Output gap; Predictability; Stock return (search for similar items in EconPapers)
JEL-codes: E32 F44 G15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:42:y:2014:i:c:p:76-82

DOI: 10.1016/j.jbankfin.2014.01.035

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