Working Paper Series, Department of Finance, Copenhagen Business School
Output and Expected Returns - a multicountry study
Abstract: This paper analyzes whether the price-output ratio (the
cpy-ratio) predicts real stock returns
in twelve OECD countries. The
cpy-ratio is a ratio of a share price to a macroeconomic
Traditionally, either ratios of purely financial indicators, ratios of
macroeconomic indicators, or ratios of macroeconomic indicators
to wealth have been
used to predict returns. However, if share prices
are mean reverting, and thus contain
a predictable component, and
predictability of returns is related to the macroeconomic
that ultimately determines the investment opportunities, a ratio of a share
price to a macroeconomic variable could be believed to predict returns.
reveal that the cpy-ratios do indeed predict future stock
returns in most of the countries
that are studied.
Keywords: share prices; output of firms; return predictability; (follow links to similar papers)
JEL-Codes: F30; G15; (follow links to similar papers)
55 pages, December 1, 2002
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