This paper introduces a novel consumption-based variable, cyclical consumption, and examines its predictive properties for stock returns. Future expected stock returns are high (low) when aggregate consumption falls (rises) relative to its trend and marginal utility from current consumption is...

Rapach, Ringgenberg and Zhou (2016) claim that for the sample period 1973 to 2014 "short interest is arguably the strongest known predictor of aggregate stock returns", that it "outperforms a host of popular predictors", and that it represents "informed traders who are able to anticipate changes...

Using a new variable based on a model of dividend smoothing, we find dividend growth is highly predictable and cash flow news contributes importantly to return variability. Cash flow betas derived from this predictability are central to explaining the size effect in the cross section of returns....

The output gap, a production-based macroeconomic variable, is a strong predictor of U.S. stock returns. It is a prime business cycle indicator that does not include the level of market prices, thus removing any suspicion that returns are forecastable due to a “fad” in prices being washed...

The predictive ability of the dividend-price ratio for future stock returns does not necessarily imply that dividend-price ratios predict future stock prices. Stock returns consist of both a capital gain and a dividend yield component, and we show that predictability of stock returns by lagged...

We decompose stock market returns into cash flow news and discount rate news and show that an increase (decrease) in discount rate news, which reflects an increase in the quantity of risk or level of risk aversion in the economy, predicts a decrease (increase) in future aggregate output....