Market Expectations in the Cross-Section of Present Values

• 成果类型: Article
• 署名作者: Kelly, Bryan; Pruitt, Seth
• 署名单位: University of Chicago
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12060
• 发表日期: 2013
• 页码: 1721-1756
• 关键词: STOCK RETURNS; dividend yields; RISK; consumption; arbitrage; GROWTH; heteroskedasticity; predictability; equilibrium; explanation

摘要

Returns and cash flow growth for the aggregate U.S. stock market are highly and robustly predictable. Using a single factor extracted from the cross-section of book-to-market ratios, we find an out-of-sample return forecasting R-2 of 13% at the annual frequency (0.9% monthly). We document similar out-of-sample predictability for returns on value, size, momentum, and industry portfolios. We present a model linking aggregate market expectations to disaggregated valuation ratios in a latent factor system. Spreads in value portfolios' exposures to economic shocks are key to identifying predictability and are consistent with duration-based theories of the value premium.