We examine the evidence on excess stock return predictability in a Bayesian setting in which the investor faces uncertainty about both the existence and strength of predictability. When we apply our methods to the dividend-price ratio, we find that even investors who are quite skeptical about the existence of predictability sharply modify their views in favor of predictability when confronted b...

We study how stock return’s predictability and model uncertainty affect a rational buy-and-hold investor’s decision to allocate her wealth for different lengths of investment horizons in the UK market. We consider the FTSE All-Share Index as the risky asset, and the UK Treasury bill as the risk free asset in forming the investor’s portfolio. We identify the most powerful predictors of the stock...

Recent empirical evidence suggests that the variance risk premium, or the difference between risk-neutral and statistical expectations of the future return variation, predicts aggregate stock market returns, with the predictability especially strong at the 2-4 month horizons. We provide extensive Monte Carlo simulation evidence that statistical finite sample biases in the overlapping return reg...

The interest in predicting stock prices or returns is probably as old as the markets themselves, and the literature on the subject is enormous. Fama (1970) reviews early work and provides some organizing principles. This chapter concentrates selectively on developments following Fama's review. In that review, Fama describes increasingly fine information sets in a way that is useful in organizin...

The contribution of this paper is threefold. First, we demonstrate that, provided either a suitable bootstrap implementation employed or heteroskedasticity-consistent standard errors are used, the IVX-based predictability tests Kostakis et al. (2015) retain asymptotically valid inference under null hypothesis considerably weaker assumptions on innovations than required by (2015). Second, same a...

We investigate the informational content of a huge assortment NASDAQ articles about joint cross-section S&P 500 stock return data and related single-stock option data. Splitting into trading-time an overnight archive, we distill tone from each them. show that media-expressed is informative markets both predict returns. The predictive power variables robust to partialling out tone, but varies de...