On the Predictability of Stock Returns: An Asset-Allocation Perspective

Shmuel Kandel and Robert Stambaugh

No 4997, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The predictability of monthly stock returns is investigated from the perspective of a risk-averse investor who uses the data to update initially vague beliefs about the conditional distribution of returns. The optimal stocks-versus-cash allocation of the investor can depend importantly on the current value of a predictive variable, such as dividend yield, even though a null hypothesis of no predictability might not be rejected at conventional significance levels. When viewed in this economic context, the empirical evidence indicates a strong degree of predictability in monthly stock returns.

JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 1995-01
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as Journal of Finance 51 (1996):385-424.

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Journal Article: On the Predictability of Stock Returns: An Asset-Allocation Perspective (1996)
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