Journal of Finance Vol. 51 No. 2 1996
On the Predictability of Stock Returns: An Asset‐Allocation Perspective
Abstract
Sample evidence about the predictability of monthly stock returns is considered from the perspective of a risk‐averse Bayesian investor who must allocate funds between stocks and cash. The investor uses the sample evidence to update prior beliefs about the parameters in a regression of stock returns on a set of predictive variables. The regression relation can seem weak when described by usual statistical measures, but the current values of the predictive variables can exert a substantial influence on the investor's portfolio decision, even when the investor's prior beliefs are weighted against predictability.
- DOI
- 10.1111/j.1540-6261.1996.tb02689.x
- Volume
- 51
- Issue
- 2
- Pages
- 385-424
- Language
- en
- Sources
- openalex crossref