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Predicting Stock Returns in an Efficient Market

1990; Wiley; Volume: 45; Issue: 4 Linguagem: Inglês

10.2307/2328717

1540-6261

Ronald J. Balvers, Thomas F. Cosimano, Bill McDonald,

Economic theories and models

The Journal of FinanceVolume 45, Issue 4 p. 1109-1128 Article Predicting Stock Returns in an Efficient Market RONALD J. BALVERS, RONALD J. BALVERSSearch for more papers by this authorTHOMAS F. COSIMANO, THOMAS F. COSIMANOSearch for more papers by this authorBILL MCDONALD, BILL MCDONALD Department of Finance, University of Notre Dame. This research was funded by the Herrick Foundation Fund and the Center for Research in Banking. Data were provided by the Jesse H. Jones Research Data Base. We are grateful to Gerald Dwyer, James Holmes, Dennis Jansen, Allan Kleidon, Steven Ross, and Richard Sheehan for helpful comments. In addition, the paper benefited from discussions with seminar participants at the Federal Reserve Bank of New York, Michigan State University, Texas A&M University, and University of Notre Dame and substantive comments of an anonymous referee.Search for more papers by this author RONALD J. BALVERS, RONALD J. BALVERSSearch for more papers by this authorTHOMAS F. COSIMANO, THOMAS F. COSIMANOSearch for more papers by this authorBILL MCDONALD, BILL MCDONALD Department of Finance, University of Notre Dame. This research was funded by the Herrick Foundation Fund and the Center for Research in Banking. Data were provided by the Jesse H. Jones Research Data Base. We are grateful to Gerald Dwyer, James Holmes, Dennis Jansen, Allan Kleidon, Steven Ross, and Richard Sheehan for helpful comments. In addition, the paper benefited from discussions with seminar participants at the Federal Reserve Bank of New York, Michigan State University, Texas A&M University, and University of Notre Dame and substantive comments of an anonymous referee.Search for more papers by this author First published: September 1990 https://doi.org/10.1111/j.1540-6261.1990.tb02429.xCitations: 138 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL ABSTRACT An intertemporal general equilibrium model relates financial asset returns to movements in aggregate output. The model is a standard neoclassical growth model with serial correlation in aggregate output. Changes in aggregate output lead to attempts by agents to smooth consumption, which affects the required rate of return on financial assets. Since aggregate output is serially correlated and hence predictable, the theory suggests that stock returns can be predicted based on rational forecasts of output. The empirical results confirm that stock returns are a predictable function of aggregate output and also support the accompanying implications of the model. REFERENCES Balke, Nathan S. and Robert J. Gordon, 1989, The estimation of prewar gross national product: Methodology and new evidence, Journal of Political Economy 97, 38– 92. Baltagi, Badi H. and James M. Griffin, 1988, A general index of technical change, Journal of Political Economy 96, 20– 41. 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