Purpose: The aim of our paper is twofold. First, we examine the predictive ability of log bookmarket, dividend-price, earnings-price and dividend-earnings ratios on the most recent data set of the strongest securities in the UK economy; unlike the majority of the studies in this data set, our...

We extract cycles from the term spread and study their role for predicting the equity premium using linear models. When properly extracted, the trend of the term spread is a strong and robust out-of-sample equity premium predictor, both from a statistical and an economic point of view. It...

Monetary policy, as captured by changes in the Fed funds rate (FFR), is a useful signal for investors. I analyze the economic significance of trading strategies based on the “out-of-sample” forecasting power of FFR for excess equity returns. A simple market timing strategy produces an annual...

This paper aims to investigate the impact of uncertainty on the predictive power of term spread and its components for future stock market returns and economic activity in Korea and the USA. This paper finds that the stock market’s expected excess return and growth of economic activity are...

This paper calibrates a class of jump-diffusion long-run risks (LRR) models to quantify how well they can jointly explain the equity risk premium and the variance risk premium in the U.S. financial markets, and whether they can generate realistic dynamics of riskneutral and realized...

This paper investigates the predictive ability of international volatility risk for the daily aggregate Chinese stock market returns. We employ the innovations in implied volatility indices of seven major international markets as our international volatility risk proxies. We find that...

The empirical literature of stock market predictability mainly suffers from model uncertainty and parameter instability. To meet this challenge, we propose a novel approach that combines the documented merits of diffusion indices, regime-switching models, and forecast combination to predict the...

We show that U.S. corporate bond market movements during the days preceding FOMC announcements can predict monetary policy surprises, as well as the pre-FOMC stock market movements. Starting several days before an expansionary (contractionary) surprise in FOMC decisions, corporate bond prices...