Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/29312
Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Predicting Firm Level Stock Returns: Implications for Asset Pricing and Economic Links
Author(s): McMillan, David
Contact Email: david.mcmillan@stir.ac.uk
Keywords: Stock Returns
Predictability
Firm-Level
Asset Pricing
Output
Issue Date: 15-Apr-2019
Citation: McMillan D (2019) Predicting Firm Level Stock Returns: Implications for Asset Pricing and Economic Links. British Accounting Review. https://doi.org/10.1016/j.bar.2019.04.001
Abstract: We examine the predictive ability of stock price ratios, stock return dispersion and distribution measures for firm level returns. Analysis typically focusses on market level returns, however, for the underlying asset pricing model to hold, firm-level predictability should be present. Additionally, we examine the economic content of predictability by considering whether the predictive coefficient has the theoretically correct sign and whether it is related to future output growth. While stock returns reflect investor expectations regarding future economic conditions, they are often too noisy to act as predictor. We use the time-varying predictive coefficient as it reflects investor confidence in the predictive relation. Results suggest that a subset of stock price ratios have predictive power for individual firm stock returns, exhibit the correct coefficient sign and has predictive power for output growth. Each of these ratios has a measure of fundamentals divided by the stock price and has a positive relation with stock returns and output growth. This implies that as investors expect future economic conditions to improve and earnings and dividends to rise, so expected stock returns will increase. This supports the cash flow channel as the avenue through which stock return predictability arises.
DOI Link: 10.1016/j.bar.2019.04.001
Rights: [ReasonForEmbargoRequest] Until this work is published there will be an embargo on the full text of this work. Publisher requires embargo of 24 months after formal publication.
Notes: Output Status: Forthcoming/Available Online

Files in This Item:
File Description SizeFormat 
dp_ep_g7_firms_bar.pdfFulltext - Accepted Version587.5 kBAdobe PDFUnder Embargo until 2021-04-16    Request a copy

Note: If any of the files in this item are currently embargoed, you can request a copy directly from the author by clicking the padlock icon above. However, this facility is dependent on the depositor still being contactable at their original email address.



This item is protected by original copyright



Items in the Repository are protected by copyright, with all rights reserved, unless otherwise indicated.

If you believe that any material held in STORRE infringes copyright, please contact library@stir.ac.uk providing details and we will remove the Work from public display in STORRE and investigate your claim.