Stock Returns, Expected Returns, and Real Activity

Stock Returns, Expected Returns, and Real Activity ABSTRACT Measuring the total return variation explained by shocks to expected cash flows, time‐varying expected returns, and shocks to expected returns is one way to judge the rationality of stock prices. Variables that proxy for expected returns and expected‐return shocks capture 30% of the variance of annual NYSE value‐weighted returns. Growth rates of production, used to proxy for shocks to expected cash flows, explain 43% of the return variance. Whether the combined explanatory power of the variables—about 58% of the variance of annual returns—is good or bad news about market efficiency is left for the reader to judge. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Stock Returns, Expected Returns, and Real Activity

The Journal of Finance, Volume 45 (4) – Sep 1, 1990

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Publisher
Wiley
Copyright
1990 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1990.tb02428.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT Measuring the total return variation explained by shocks to expected cash flows, time‐varying expected returns, and shocks to expected returns is one way to judge the rationality of stock prices. Variables that proxy for expected returns and expected‐return shocks capture 30% of the variance of annual NYSE value‐weighted returns. Growth rates of production, used to proxy for shocks to expected cash flows, explain 43% of the return variance. Whether the combined explanatory power of the variables—about 58% of the variance of annual returns—is good or bad news about market efficiency is left for the reader to judge.

Journal

The Journal of FinanceWiley

Published: Sep 1, 1990

References

  • Predicting stock returns in an efficient market
    Balvers, Balvers; Cosimano, Cosimano; McDonald, McDonald
  • The monetary and fiscal linkage between stock returns and inflation
    Geske, Geske; Roll, Roll
  • Large sample properties of generalized method of moments estimators
    Hansen, Hansen

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