Money Growth and Aggregate Stock Returns
Dr. Tobias Böing () and
Prof. Dr. Georg Stadtmann ()
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Dr. Tobias Böing: European-University Viadrina, Große Scharrnstraße 59, 15230 Frankfurt (Oder)
Prof. Dr. Georg Stadtmann: European-University Viadrina, Große Scharrnstraße 59, 15230 Frankfurt (Oder), and University of Southern Denmark, Odense
Credit and Capital Markets, 2017, vol. 50, issue 4, 489-508
We empirically evaluate the predictive power of money growth measured by M2 for stock returns of the S&P 500 index. We use monthly US data and predict multiperiod returns over 1, 3, and 5 years with long-horizon regressions. In-sample regressions show that money growth is useful for predicting returns. Higher recent money growth has a significantly negative effect on subsequent returns of the S&P 500. An out-of-sample analysis shows that a simple model with money growth as a single predictor performs as goods as the constant expected returns model, while models with several predictor variables perform worse than those simple models.
JEL-codes: C58 E44 E47 G14 G17 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:kuk:journl:v:50:y:2017:i:4:p:489-508
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