Purpose: This article investigates stock return predictability in the Korean stock market using the methodology of dynamic factor analysis. Design/methodology/approach: This article collects monthly data on the equity risk premium on the KOSPI and twelve financial and macroeconomic variables...

It is well-known that there is a strong correlation between valuation ratios and long-term returns on certain stock-market indices such as the S&P 500. Scatter-plots of valuation ratios versus long-term stock-returns often show a characteristic downwards slope, where higher valuation ratios...