The predictability of industry portfolio returns

Li, Y., Lu, W. and Zhong, M. (2011) The predictability of industry portfolio returns. Applied Economics, 43 22: 2865-2881. doi:10.1080/00036840802360260


Author Li, Y.
Lu, W.
Zhong, M.
Title The predictability of industry portfolio returns
Journal name Applied Economics   Check publisher's open access policy
ISSN 0003-6846
1466-4283
Publication date 2011-01-01
Sub-type Article (original research)
DOI 10.1080/00036840802360260
Open Access Status Not Open Access
Volume 43
Issue 22
Start page 2865
End page 2881
Total pages 17
Place of publication Abingdon, Oxon, United Kingdom
Publisher Routledge
Language eng
Abstract This article studies the predictability of stock returns from industry portfolios. Consistent with the habit formation framework of Campbell and Cochrane (1999, 2000), we find that reasonably large portions of predictability of long-horizon industry portfolio returns are explained by the ratio of aggregate consumption in surplus of habit or its instrument, the consumption-wealth ratio. The time-varying βs and, more importantly, time-varying market risk premium associated with either the surplus consumption ratio or the consumption-wealth ratio help explain the predictable variation of long-horizon expected returns on over half of the industry portfolios. The conditional Capital Asset Pricing Model (CAPM) with βs varying with the proposed conditioning variable performs better than the static CAPM, but not as well as the Fama-French (1993, 1997) three-factor model in explaining the time-series variability of returns.
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: UQ Business School Publications
 
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