Predictor imperfection: international evidence |
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Authors: | Lijie Zhang Yong Li |
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Institution: | Hanqing Advanced Institute of Economics and Finance, Renmin University of China, Beijing 100872, China |
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Abstract: | Pástor and Stambaugh (2009) demonstrate that the relationship between predictors and equity premium is imperfect in US market using a new model named predictive system. This article extends their study by providing international evidence of predictor imperfection using samples from G7 countries. Our results show that predictor imperfection is ubiquitous in all G7 countries and that investors’ prior beliefs about the relationship between predictors and equity premium play a significant role in predictor’s explanatory power. |
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Keywords: | Predictor imperfection international evidence prior belief equity premium |
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